Policy and regulatory uncertainties have created headwinds for healthcare providers thus far this year, leading to a sector-wide discount to the S&P500 to near 30-year lows.
| US Sector | Forward Price to Earnings Ratio (P/E) |
| Energy | 14.9 |
| Financials | 16.1 |
| Healthcare | 17.3 |
| Materials | 19.3 |
| Utilities | 19.6 |
| Communication Services | 21.5 |
| Consumer Staples | 21.5 |
| S&P500 Index | 22.9 |
| Industrials | 24.0 |
| Consumer Discretionary | 28.7 |
| Information Technology | 30.1 |
| Real Estate | 36.9 |
Source: Yardeni Research
The US healthcare sector is currently trading at a forward price-to-earnings (P/E) ratio of 17.3x; well below the broader S&P 500 Index at 22.9x. This attractive relative valuation, combined with in-depth fundamental research, has prompted Morningstar to initiate a dedicated position in a healthcare ETF. Across the portfolios, this contributes to a “look-through” exposure to healthcare companies of 12.5% in Growth and 12.9% in Balanced, alongside other core holdings. Key underlying investments include:
| Investment | Forward P/E | 5 Year Average Returns on Invested Capital |
| Merck | 10.0 | 28.3 |
| GSK | 15.2 | 16.7 |
| Johnson & Johnson | 15.8 | 15.9 |
| Vertex Pharma | 24.5 | 20.4 |
| United Health | 19.4 | 14.5 |
| AbbVie | 19.3 | 18.2 |
| Cigna | 10.5 | 7.8 |
| Humana | 14.2 | 8.6 |
| Regeneron | 12.9 | 13.1 |
| Average | 15.9 | 19.0 |
Source: Morningstar Investment Research
With traditional safe-haven assets like gold rallying to levels 158% above the 90th percentile all-in sustaining cost for miners, it is prudent to establish a defensive allocation in anticipation of potential market corrections ahead. Historically, the healthcare sector has demonstrated remarkable resilience, declining less than half as much as the broader market during downturns; for instance, -15% versus -34% in 2008. This stability arises from the inelastic demand for medical services and pharmaceuticals, which tends to endure through recessions and geopolitical unrest alike. The sector’s current undervaluation, coupled with these inherent defensive qualities, positions the portfolios to maintain robustness amid heightened volatility.