This post was contributed to by Harvest ETFs, one of the largest covered call ETF providers in Canada, and a leader in covered call ETFs.
The healthcare space received a great deal of attention in 2023. Subsectors like pharmaceuticals, life sciences (PLS), and healthcare services (HCS) M&A remained resilient in the face of broader volatility.
There are still innovative companies in these sectors. However, there are headwinds in the form of higher interest rates and constant regulatory scrutiny.
Let’s explore some of the more exciting opportunities in the healthcare space.
What makes the healthcare sector a worthwhile target right now?
There are several reasons why Healthcare ETFs (Exchange-Traded Funds) can be a strong part of a diversified portfolio. The healthcare sector has unique attributes and when combined with the advantages of ETFs as an investment vehicle, investors will find an excellent cornerstone to their portfolio.
Harvest ETFs chief investment officer (CIO) and portfolio manager Paul MacDonald, CFA, recently discussed the state of the healthcare market back in January. He covers a variety of topics, some of which include:
Innovation and Development: healthcare being at the forefront of technological innovation and biotechnological advancements.
Stable Growth: how the healthcare sector often experiences steady growth, driven by an aging global population and other factors.
Diversification within Healthcare: healthcare ETFs offer diversified exposure within the sector itself, including pharmaceuticals, biotech, healthcare providers, medical devices, and healthcare IT.
Responding to Societal Challenges: the sector is directly involved in addressing major health challenges, with investments in healthcare ETFs tied to the direct impacts on global well-being.
Global Exposure: Many healthcare ETFs invest in companies operating internationally, providing exposure to global healthcare markets.
Goldman Sachs recently released a report that estimated the widespread use of new weight-loss drugs in the United States could boost gross domestic product (GDP) by 1% in the coming years. Indeed, other analysts have projected that the market for weight-loss drugs could reach US$100 billion by the end of the decade.
That’s because weight loss drugs, or GLP-1s, have attracted considerable attention in 2023. Readers may be familiar with Ozempic, the GLP-1 manufactured by Novo Nordisk. Eli Lilly has released Wegovy as an injectable weight-loss medication. However, it has also introduced a powerful GLP-1 called Zepbound. Early reports suggest that Zepbound is more effective at supporting weight loss and blood sugar reduction, while Wegovy may lead to fewer side effects and is better tolerated among users.
Artificial intelligence (AI) has also garnered attention as a game-changer that could have wide-ranging impact across a variety of sectors, not just technology. Earlier this year, Harvest also discussed why investors may have more AI exposure than they originally thought. That is also true of the healthcare space. Indeed, AI is making waves in several ways.
Generative AI is attracting attention due to its uses in creative fields. However, it also has application in the healthcare sector. For example, generative AI can take unstructured data sets and analyse them. That could represent a breakthrough for healthcare operations going forward. These operations are rich in unstructured data like clinical notes, medical charts, diagnostic images, and other materials.
Let’s take a look at the largest healthcare ETF in Canada. What makes it stand out compared to its competitors?
How have some healthcare ETF set themselves apart?
The Harvest Healthcare Leaders Income ETF (HHL:TSX) offers investors the opportunity to invest in innovative leaders in this vital sector. Earlier this year, HHL hit a milestone. This ETF has paid over C$400 million in total distributions to unit holders since inception. HHL is Canada’s largest healthcare ETF, with approximately C$1.5 billion in assets under management (AUM) at the time of this writing.
HHL has paid out a monthly distribution of $0.0583 per unit for nearly 10 years. That represents a current yield of 8.34% as at March 19, 2024.
For readers who are looking for more income from exposure to healthcare, there is the Harvest Healthcare Leaders Enhanced Income ETF (HHLE:TSX), which is one of Harvest’s Enhanced Equity Income ETFs. Harvest Enhanced Equity Income ETFs offer leveraged exposure to select Harvest Equity Income ETFs.
HHLE applies modest leverage to an investment in HHL providing investors exposure of 1.25 times HHL for each dollar they invest in HHLE. HHLE offers access to the same portfolio of large-cap US healthcare companies and provides an opportunity for enhanced monthly cash distribution and long-term growth potential. With the use of leverage, the risk rating on HHLE is medium to high, which is slightly higher than HHL’s.
The Harvest Advantage: Growth and high monthly cashflow
Harvest ETFs focus on wealth creation by investing in strong, growth-oriented businesses and using covered calls for income generation. HHL offers investors the ability to tap into the growth potential in the burgeoning healthcare space. Moreover, it employs an active covered call strategy to monetize volatility. HHL has paid out a monthly distribution of $0.0583 per unit for nearly 10 years. That represents a current yield of 8.34% as at March 19, 2024.
Healthcare ETFs Are a Great Addition to Any Portfolio
In summary, healthcare ETFs like those provided by Harvest are excellent investment vehicles. The strengths of the healthcare sector, such as stable growth, resilience, and innovation, can be combined with the advantages of ETFs, like diversification and covered call strategies. Investors looking to diversify their portfolios would find Healthcare ETFs to be a solid option.
Disclaimer:
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. The information is meant to provide general information for educational purposes.
