The XHS ETF (SPDR) replicates an index consisting of 55 US health care specialists (35%), Healthcare Facilities (27%),Managed Health Care (24%), and Heath Care Distributors (15%).
It is a highly geographically diversified index, mainly composed of US stocks and quoted in USD, but rather diversified in terms of sub-sectors of activity and the number of companies The top 10 stocks only account for 26% of the index.
The first capitalization, Teladoc weighs only 3.2% followed by Acadia Healthcare Company (2.9%). This sector has the particularity of being fairly defensive because it depends very little on economic growth. However medical care in the US is quite expensive and not always fully covered by insurance, so the sector could be potentially impacted by a severe and lasting crisis. Health is also a regulated market and the administration can influence the services market by legislating on taxes and the health insurance system.
The historical performance of XHS is very satisfactory and has risen by 160% since its inception in 2012, performance was weak in 2016 (-8.6%) due to political uncertainties regarding US health policy, but XHS is progressing from almost 14% since the beginning of the year, while costs remain fairly conventional at 0.35%.
Defensive sectors have been somewhat neglected since October, leaving them to cyclical sectors and banks that benefit from expectations of tax cuts, financial deregulation and infrastructure investments. But the sector is mostly impacted at the moment by the lack of visibility on the evolution of the Medicaid, while Donald Trump has just failed a second time to validate its reform of the Obamacare after the US congress, yet a Republican majority rejects the amendments. This increases the uncertainty about what the next healthcare reform will be, with the fear that an in-depth change of the Obamacare will occur this time, which would penalize the healthcare institutions.
