This Health Care ETF Looks Pretty Cheap Right Now

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August 22, 2016 12:11pm NYSE:VHT

The Vanguard Health Care ETF (NYSE:VHT) has underperformed not just the wider market but all of Vanguard’s other sector ETFs over the past year — which might actually be good news for prospective investors.


Normally investors are better served simply following the current trends, but that’s not always the case. In an investing era where nothing looks cheap, VHT might just fit the bill. In the twelve month period ending in July, VHT fell 2.6%. For comparison, the Vanguard S&P 500 ETF (NYSE:VOO) rose 5.5% in the same period.

Why the drop? Health care sector fears have mostly been political, with this year’s presidential election looming. The prevailing feeling is that Trump would be good for biotech but bad for hospitals, and Clinton would be bullish for managed care and hospitals, but bad for biotech.

Investors have responded to the political uncertainty by pulling out $1 billion from VHT over the past year.

That’s simple how things work on Wall Street. It’s a “shoot first and ask questions later” type mentality. But sometimes these situations can present opportunities for investors — especially those willing to take a contrarian stance.

Rewind back to 2011 when Obamacare was just getting started. Health care stocks sold off pretty much universally, only to rally again once the market figured out that the Affordable Care Act was actually hugely beneficial to many health insurers and other health care stocks. Sure, some stocks continued to lag, but the sector as a whole rebounded nicely.

We may be on the cusp of a similar rally in the sector, especially once the election is decided in a few months.

VHT-2016-08-22

VHT rose $0.33 (+0.24%) to $136.20 per share in Monday afternoon trading. VHT has gained 2.5% since the start of 2016, compared with a 7% rise in the S&P 500 during the same period.


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