Definition: Healthcare, also known as health or specialty-health, is a stock investing sector that focuses on the healthcare industry.
Examples and Benefits of Health Sector Funds
The healthcare sector is quite broad. Even a person with no investing experience can think of some specific area of the health industry, such as hospital conglomerates, institutional services, insurance companies, drug manufacturers, biomedical companies, or medical instrument makers. Examples include Pfizer, UnitedHealthcare, Cigna Corp, Abbott Laboratories, and HCA Holdings, Inc.
A good way to gain broad exposure to the healthcare industry is through the use of a health sector mutual fund, such as Vanguard Health Care (VGHCX) or T. Rowe Price Health Sciences (PRHSX).
Investors can use health sector funds as a tool to diversify a larger portfolio of mutual funds. The health stocks are often considered "defensive" stocks because of their relatively low correlation to broad stock index funds, such as S&P 500 Index Funds, that many investors use as core holdings in a diversified portfolio. When many industries are doing poorly due to negative economic conditions, the health industry can still perform relatively well because people still need to see the doctor and buy their drugs, regardless of economic conditions.
The Politics of Healthcare
Health care has been at the center of political debate and divide many times in recent history because the costs and accessibility of health care are passionate and personal topics for voters. Congressional legislation can positively or negatively impact some sub-sectors of healthcare. Also, expiring drug patents for widely used pharmaceuticals can negatively impact a drug manufacturer or, conversely, an FDA approval of a breakthrough drug can have positive impact.
A recent example of political impact on health stocks is the Affordable Care Act, commonly known as Obamacare, passed by Congress during the Obama administration. Some stocks advanced, such as hospital corporations while others declined, such as insurance providers. However, the overall net effect on the broad health sector was minimal. This speaks to the wisdom of diversification of mutual funds, index funds and Exchange Traded Funds (ETFs) that provide broad exposure to the health industry.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
