What’s happening with Healthcare?

In the year 2000 the S&P500 Index started a two and a half year 49% drop. There was one sector that stood out more than any other. It was Healthcare.

Yes, Healthcare got hit, but it only fell 17%, during a time period when the Nasdaq fell 76% and the S&P500 fell 49%. So only falling 17% was a win.

You can see below how the Healthcare sector stood up in 2000. The blue line is XLV, a Healthcare ETF vs. the red line, the S&P500 Index.  

And then it happened again in 2008.

When US markets fell 58% with international markets falling even more. It was Healthcare that held up noticeably better than almost everything else.

Healthcare still fell a horrifying 38%, but even your typical 60/40 stock/bond portfolio fell 38% during the same time period.

So -38% still would have showed up as a winner to many investors considering that was an all equity sector matching the performance of the most followed stock/bond split allocation in investing.

You can see in the image below how Healthcare (blue) again was a place of safety compared to the S&P500 Index w/dividends (green) during the 2008 Global Financial Crisis. And even Vanguard’s 60/40 Balanced fund (VBINX) couldn’t outperform Healthcare during the worst market drop since 1929. Just saying.

Healthcare not only protected people in 2000 and 2008, but then it was one of the strongest sectors from the bottom of the Global Financial Crises in March 2009 until August 2015… providing seven years of strength. XLV outperformed the S&P500 w/dividends (read: a very high bar) by more than fifty percentage points.

We have three times when Healthcare acted as a smart place to have some of your money…

…So what’s going on with it today?

Though Healthcare held up very well going into the 20% drop at the end of 2018. It has really underperformed in 2019.

XLV (Healthcare) is actually down for the year about ⅓ of a percent. During the same time the S&P 500 Index is up 16%.

And yet, as you can see below, XLV is still moving higher and in a strong uptrend. But still. Its down -0.3% while the S&P is up 16% in the first four months of 2019. What gives?

I don’t ever recall seeing such a discrepancy between Healthcare and the S&P so late in a calendar year. So, what’s going on?

The short answer is… maybe nothing.

There’s no law that says Healthcare has to act a certain way or be up a certain percentage at a certain time in the year.

And as you can see above, the trend is fully intact.

But then I got thinking what if something more was going on?

What if Jeff Bezos (Amazon) or Sundar Pichai (Google) or Satya Nadella (Microsoft) or Mark Zuckerberg (Facebook) or Tim Cook (Apple) were planning to take on Healthcare?

After all Healthcare is a $2.8 trillion annual industry in the US alone and innovation only really seems to be found in the medical devices division of Healthcare. Right?

“I absolutely love my health insurance…” Said no one.

Is this what the entire Healthcare sector is worried about?

SIDENOTE: By the way did you notice that two of the five CEOs of the biggest publicly traded companies in the United States are headed by people who were not born in this country? Just saying.

Is Jeff Bezos going to offer healthcare plans to its Prime Members?

Is this why United Healthcare (UNH) is nose diving even though they had great earnings? I typed into Google, “is amazon getting into healthcare,” and these were the first four organic results, see here, here, here and here.

So is this what is going on? Is Bezos taking on UNH? Well, for the sake of better healthcare I hope so.

But the honest answer is I don’t know. But it definitely makes for a better story then, “maybe nothing.” What we do know is the sector is still in a clear uptrend. And is clearly underperforming the general stock market right now.

If I would leave you with anything, it’s this…

Owning a sector that is not falling but is underperforming right now is very different then owning something that is falling AND underperforming. More times than not the market will fix itself, and right now XLV is going sideways in a longer term (10 year) uptrend.

AND if things change and XLV turns down (and not just sideways), especially while the market moves higher then we have a different narrative. But for now, we wait and watch price.

If you would like this type of thinking happening with your portfolio then the next step is the easiest. We jump on a call and look to see what can be adjusted with your money.

In Your Corner,

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RC Peck, CFP

PS – Whenever you’re ready, there’s three things I can help you with…

  1. Do NOT lose half your money [again] in the upcoming recession.
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  2. Your portfolio has leaks… When will you get a second opinion? When was the last time you had a third-party person look over your portfolio and clearly point out to you where all the leaks are? You might be surprised how many there are. And no, I’m not talking about the obvious fees.

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