Strategist explains why there’s a ‘good setup’ for healthcare stocks #CanadaFinance

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Investors have been hesitant to invest in healthcare stocks (XLV) as the sector’s returns have lagged behind gains in the broader market.

But the market may begin to favor healthcare again, according to one strategist.

“I think there’s a good setup of data to start adding healthcare to your portfolio,” Strategas Asset Management ETF strategist Todd Sohn said on an episode of the Stocks in Translation podcast (see video above or listen below) that aired on Feb. 11. He emphasized diversification in healthcare ETFs, “so you’re going to get providers, you’re going to get equipment and biotech.”

Sohn acknowledged that “it’s been a rough go for healthcare” as of late. The healthcare sector placed in the bottom decile of S&P sector performance in the past five years, he noted.

While that may make healthcare stocks seem like a less-than-lucrative investment option, Sohn argued they’re due for better performance — especially considering the recent sell-offs in tech.

“Usually when you get extremes like that, that’s interesting, and there’s been massive amounts of outflows from healthcare ETFs,” Sohn said. “So that tells me investors have left the [healthcare] space — they’ve deserted it. From a sentiment and a contrarian perspective, I like that idea. Especially if tech starts to falter here a little bit more too.”

Should investors ease up on their investments in the tech space, according to Sohn, healthcare could be a potential hedge for investors.

“There’s a trade-off because healthcare does have those growth and value characteristics that you’ll get from technology as well,” he said.

“If you were to get software to take a hit, that leaves broader tech in trouble,” Sohn said. “So that’s where healthcare comes into play because it’s still a large weight. Or, say, something like Industrials and [Consumer] Discretionary — those will still at least hold up the benchmarks.”

Though tech, AI, and crypto have been catalysts for stocks’ recent highs, Sohn isn’t the first expert to caution that the trends may shift to favor other markets.

“I think the main takeaway is the trend of the market is still up, but things are evolving,” he said. “Now the question [is] if the broader industry is going to make a new high, is participation still there? That’s going to be the most important question heading into the rest of the first quarter and into the summer months because that’s where durability is made or divergences are made too.”