Quality and Value Linger in This Equal-Weight ETF

Locating quality and value under the umbrella of a single exchange traded fund isn’t easy, but it’s possible. Investors looking for that alluring combination at the sector level might want to consider healthcare.

Investors looking to minimize concentration risk while accessing the benefits of healthcare may want to consider the Invesco S&P 500 Equal Weight Health Care ETF (RYH), one of the dominant names among equal-weight healthcare ETFs.

RYH, which tracks the S&P 500^® Equal Weight Health Care Index, is following the broader market lower this year, but some experts believe that the healthcare sector is poised to rebound and the current cost of admission for investors is attractive.

“We see healthcare as a safe-haven in a world with elevated geopolitical risks, high inflation, and decelerating global growth,” JPMorgan’s Lakos-Bujas Dubravko wrote in a Tuesday note to clients.

Dubravko highlights 10 healthcare names in his report, several of which are among RYH’s 67 member firms. That includes pharmacy benefits manager CVS Health (NYSE:CVS).

“Among the franchise stock picks, JPMorgan is betting on CVS Health, which is viewed as offering an 11% return from Monday’s close price,” reports Samantha Subin for CNBC. “CVS, which has been at the forefront of Covid-19 vaccine distribution, is one of the top positioned companies to weather the ‘shift to value-based care and the ongoing ’retailization- of healthcare.’”

JPMorgan is also bullish on Dow component and health insurance name UnitedHealth ((NYSE:UN)H).

“Health care giant UnitedHealth Group also made JPMorgan’s higher quality stock list. UnitedHealth was one of the best performers on average during the last three rate hiking cycles, according to a recent screen from CNBC Pro, and JPMorgan thinks it’s poised to withstand the current macroenvironment,” according to CNBC.

Confirming its lack of concentration risk, none of RYH’s holdings exceed a weight of 1.82%. However, that doesn’t diminish the ETF’s credibility as a value play, as more than a third of the fund’s components are classified as value stocks.

Beyond value, RYH is relevant in the current environment because its components offer rich dividend growth potential and strong pricing power — two traits that make the healthcare fund a valid consideration for investors looking for an inflation-fighting vehicle.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.