The S&P 500 and Dow have hit record highs but healthcare ETFs have been leading the way along with other defensive sectors like utilities and consumer staples.
Health Care Select Sector SPDR Fund (XLV) has increased 17.5% year-to-date, compared to the 10.0% rise in the S&P 500.
Johnson & Johnson, the ETF's top holding, has been powering the sector fund higher.
XLV's top five holdings include:
- Johnson & Johnson (JNJ): 12.9% of the fund; up 17.2% year-to-date
- Pfizer Inc (PFE): 11.8% of the fund; up 16.0% year-to-date
- Merck & Co Inc. (MRK): 7.7% of the fund; up 9.0% year-to-date
- Amgen Inc (AMGN): 4.4% of the fund; up 19.5% year-to-date
- Gilead Sciences (GILD): 4.1% of the fund; up 33.3% year-to-date
The ETF's sector allocations include pharmaceuticals 47.8%, healthcare equipment & supplies 17.0%, healthcare providers & services 15.8%, biotech 15.0%, life sciences tools & services 3.7% and healthcare technology 0.8%.
While major stocks in this sector are trading around all-time highs, Credit Suisse analyst Ravi Mehrotra believes they have room to rise even further because of successful clinical trials and new product launches, the Associated Press reports.
Notably, Gilead Sciences has seen its shares double in value over the last year after acquiring hepatitis C drug developer Pharmasset, and Amgen shares rose 86% since 2011 due to new cancer fighting drugs.
"Historically defensive and noncyclical, the health-care sector is seeing added growth from an aging America," according to Morningstar analyst Robert Goldsborough. "Demand is relatively stable because people require treatment regardless of the economy, and the need among approximately 78 million baby boomers in the United States for greater treatment makes for a compelling secular growth story. An aging population bodes well for the industry's future prospects because the majority of people's lifetime medical costs are spent in their final few years."
The chart below shows the relative performance of XLV, the healthcare ETF, versus the S&P 500.
Health Care Select Sector SPDR Fund
Max Chen contributed to this article.