- The healthcare sector as a whole has been the best performer on the S&P 500 since the stock market peaked in mid-February.
- Within the sector, managed healthcare companies including insurers have recovered the most since the crash bottomed out.
- Investors are buying these companies for their defensive qualities and can expect further upside to their returns, according to The Leuthold Group.
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Bank stocks proved to be one of the best bargain buys of the 2008 financial crisis. This time around, managed healthcare may be the cohort that stages a roaring rally.
The group of companies that includes insurers is staging the biggest comeback from the market bottom within healthcare. Its broader sector has held up best on the S&P 500 since the market peaked mid-February, down just 3% versus 14% for the benchmark index. Investors have leaned into it for its defensive qualities since people continue needing care during crises.
Healthcare’s allure is as strong as ever now, during a severe downturn that was triggered by the coronavirus pandemic. Along with the biotech companies that are formulating treatments and vaccines, managed healthcare companies are attractive long-term bets, according to The Leuthold Group.
The investment firm, which oversees more than $1 billion in assets, owns managed health care stocks in its Leuthold Select Industries fund.
“A holding in the SI portfolio for more than a decade, this group has seen phenomenal long-term returns, besting all but one industry with a cumulative +1,000% return,” said Kristen Perleberg, a co-portfolio manager at the firm, in a recent note. She sees these returns as having yet more upside due to the coronavirus pandemic.
Managed health care stocks were not as appealing to investors for more than a year before the coronavirus arrived. Democratic Sen. Bernie Sanders had pushed his call for a single-payer healthcare system to the forefront of the presidential campaign trail. And investors knew that if his agenda prevailed, a chunk of the health insurance business would effectively be decimated.
They got a reprieve in March as former vice president Joe Biden continued to dominate the primaries and emerge as the presumptive nominee. But this bump did not last long because the longest bull market in history crashed and left investors with virtually nowhere to hide.
Even after the recent rebound of managed healthcare stocks, they still face the crisis challenge of millions of Americans losing jobs and coverage. But for now, Perleberg says, a counterweight may emerge in the form of lower costs. And longer-term, the cohort’s defensive qualities and its prospects for growth without a major political hurdle make it a top sector pick.
The Leuthold Select Industries fund Perleberg referenced earlier picks stocks based on their association with industries that have the potential to produce leading long-term returns. The three managed healthcare stocks it holds are UnitedHealth Group, Centene, and Humana.