With the hoopla surrounding mega-cap growth stocks this year, some slower-moving sectors may not be getting the attention they deserve. Arguably, healthcare is part of that group. That’s saying something when considering that is the sector is the second-largest behind technology in the S&P 500.
Part of the issue confounding healthcare stocks this year is that the cap-weighted version of the S&P 500 Health Care Index is pointing lower. Meanwhile, more glamorous fare (growth sectors) and the broader market are soaring. Some of that boils down to lethargy among large-cap biopharma stocks. Still, some analysts remain encouraged by the long-term outlook for the sector.
The Invesco S&P 500® Equal Weight Health Care ETF (RSPH ) could be one of the ideal exchange traded funds with which to access a potential healthcare rebound in the second half of 2023 owing to the fund’s exposure to the sector’s defensive, growth, and quality traits.
As things stand today, RSPH is sharply outperforming its cap-weighted rivals year-to-date while sporting less annualized volatility than the S&P 500.
RSPH Ready for Healthy Second Half
The healthcare sector is home to a plethora of wide moat companies, and RSPH in particular has them in spades. Wide moat traits include intangible assets, high switching costs, cost advantages, efficient scale, and the network effect.
Broadly speaking, the network effect is more relevant in the tech and internet realms. However, the other four wide moat attributes are widely visible in the healthcare arena, including among RSPH member firms. That includes Pfizer (PFE).
“Pfizer’s patent-protected drugs carry strong pricing power that enables the firm to generate returns on invested capital in excess of its cost of capital,” observed Morningstar sector director Damien Conover. “The patents give the company time to develop the next generation of drugs before generic competition arises.”
RSPH’s exposure to medical device makers, which account for nearly 32% of the ETF’s portfolio, is another wide moat positive thanks to the likes of Agilent Technologies (A), Thermo Fisher Scientific (TMO), and Waters (WAT). The Invesco ETF carries an allocation to this group 1,100 basis points over those found in equivalent cap-weighted ETFs.
For more news, information, and analysis, visit our Portfolio Strategies Channel.
