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I have reviewed dozens of healthcare Mutual Funds and ETF's and compared them to the major indexes (mostly S&P), as far as back in the 1980's. It appears that the healthcare sector has always outperformed the general market by quite a lot, being in the double digits in annual returns most of the time . It even appears to have less losses than the general market during market crashes. Knowing that in the U.S there is little chance of major political disruption on healthcare, why isn't this sector a "must" on every investor's portfolio? Am I missing something?

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    what happens if the US some day makes a single-payer system? This risk has been around for a while and would definitely kill the growth of the healthcare sector...
    – serakfalcon
    Feb 13, 2015 at 1:53
  • @serakfalcon True, and I acknowledged that in advance in my question, but if something like that were to happen, we would know about it way in advance; specially now that the ACA is fresh out of the oven, we won't be seeing any new healthcare reform in a long time.
    – AxiomaticNexus
    Feb 13, 2015 at 2:27
  • I have to give it to you, you're right. I picked the top 3 healthcare ETFs from a top 10 list site and of the top three, XLV, VHT and IBB all of them have beat the SPY in their history. I feel a little dumb and now am curious if their prices plus dividend payouts equal the cost that healthcare has been rising by (may be a good hedge).
    – user541852587
    Feb 13, 2015 at 22:57

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It is a must in most folks' portfolios. If you invest in S&P 500 ETFs/funds, you'll have a decent amount of healthcare. If you invest in actively managed value, blend, and growth mutual funds, you'll also get healthcare. If you're rolling your own portfolio (in the US), you might consider starting with a general purpose health company (e.g. J&J), then maybe add a large pharma company (e.g. Pfizer, Merck, etc), then top off with some more specialized/focused companies.

Of course, you don't want to put all of your portfolio in healthcare alone. There are other sectors that also have good long-term outlooks (energy & tech, as well).

EDIT: Added link to Morningstar portfolio analysis for SPX.

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The fact that you have thought of this means that many others have too, which has increased its price to a fair level, accordingly. You may want to read a bit about the Efficient Market Hypothesis.

http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

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    You may want to also read about behavioral finance and Inefficient Markets.
    – user9822
    Feb 13, 2015 at 21:31
  • While I am familiar with behavioral finance and the debate over efficient/inefficient markets, do you have any sources that support overweighting broad sectors such as healthcare for behavioral reasons?
    – jmg229
    Feb 13, 2015 at 21:50
  • You have nothing in your answer about being overweight in one sector, you have just tried to answer the question with a link to an incorrect theory.
    – user9822
    Feb 13, 2015 at 21:58
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    Why do you say incorrect? This is a well-accepted theory that supports my answer to the question, which is that it is not worth it because others have the same info and will have bought it up to the appropriate price. I could elaborate on this connection if the OP or others would like. There are alternatives to EMH, but you have not explained why they would support an alternative answer to the OP.
    – jmg229
    Feb 14, 2015 at 3:39
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    EMH is an incorrect theory because if all market participants had all the same information there would never be booms or busts. Also, EMH does not take participant's emotions into consideration, which plays a big part in how the markets realy works.
    – user9822
    Feb 14, 2015 at 4:26

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