As the Market Rotates, This Healthcare ETF Is Leading the Way
Over the past month, the market has undergone a rotation that’s seen tech sell-off and defensive sectors like healthcare reap the rewards. The jury remains out on whether this shift indicates a more inclusive rally or if it should raise questions about the bull market’s footing. Regardless, defensive sectors appear to be stepping into the spotlight.
That’s been underscored by some big hits to 2025’s best-performing tech stocks. Palantir (NASDAQ: PLTR), for example, fell by more than 21% from the open on Tuesday, Aug. 12, to its one-month intraday low on Wednesday, Aug. 20. Tech’s losses have been exacerbated over the past five trading sessions, during which time it and communication services have been the only S&P 500 sectors in the red.
Meanwhile, the healthcare sector is leading the way with a 3.47% gain over the past month, which is the best among all 11 sectors. For investors looking for broad exposure, the iShares U.S. Healthcare ETF (NYSEARCA: IYH) offers exposure to some of this year’s most beaten-down stocks that, as of late, have been showing the most promise.
A Warren Buffett-Backed Sector Play
As is often the case, Warren Buffett beat the rest of the market to the punch. When Berkshire Hathaway (NYSE: BRK.B) disclosed its Q2 Form 13F filing, it revealed a big move that many didn’t see coming: The company purchased more than $5 million shares of the world’s most valuable healthcare provider, UnitedHealth Group (NYSE: UNH).
The move proved prescient. UnitedHealth Group was battered in Q2, losing more than 60% from its year-to-date (YTD) high on April 11 to its YTD low on August 1. Then, the rotation began. Since then, UNH has gained 29.29%. But for those concerned that they may have missed out on the best of UnitedHealth’s recovery, the IYH holds a basket of similarly beaten-down healthcare stocks that present Buffett-esque value.
At 5.36%, UnitedHealth is the fourth-largest holding in the IYH. But its largest top three holdings, which account for a collective 26.35% include:
- Eli Lilly and Company (NYSE: LLY) at 10.93%
- Johnson & Johnson (NYSE: JNJ) at 8.27%
- AbbVie (NYSE: ABBV) at 7.15%
The fund has increased by 7.12% from its one-month low on Aug. 7 through Aug. 22. Much of this gain can be credited to the three previously mentioned companies’ performances during the same period. During that time, LLY rose 11.05%, JNJ increased by 4.52%, and ABBV grew by 5.90%.
Those gains have followed what had been decidedly gut-wrenching performances earlier in the year. Eli Lilly, for instance, fell by nearly 33% from its YTD high to its YTD low before kicking off its recent recovery. AbbVie was down more than 21% from its YTD high to its YTD low. And Johnson & Johnson had slid almost 13% from its then-YTD high to its YTD low.
It is a similar story for other healthcare companies among the IYH’s top 10 holdings. Merck & Co. (NYSE: MRK), the ETF’s sixth-largest holding at 4.22%, was down more than 27% from its YTD high on Jan. 7 to its YTD low on May 14. Since then, the stock has gained nearly 19%.
Big Upside Potential With a Safety-First Focus
In being defensive, the healthcare sector typically features lower volatility than the broad market’s average. Much of that has to do with the fact that it offers essential services with inelastic demand that are required regardless of macro conditions or household budgets.
That low volatility is demonstrated with the IYH’s beta, which is a measure of a security’s volatility (a.k.a., risk) relative to the overall market (i.e., the S&P 500). A beta of one indicates that a security’s price will move with the market; a beta above one indicates that a security is more volatile than the market, and a beta under one indicates that a security tends to be less volatile than the broad market.
The iShare U.S. Healthcare ETF has a three-year beta of 0.60, which makes it 40% less volatile than the S&P 500 as a whole. For context, the previously mentioned tech sweetheart of 2025—PLTR—has a three-year beta of 1.8, making the AI firm 80% more volatile than the benchmark index.
The IYH pays a dividend with a trailing 12-month yield of 1.31% to 1.37%. Over the past 12 months, the fund has seen institutional buyers commit inflows of $473.85 million compared to institutional sellers offloading $208.87 million. Short interest is low at just 1.30%—or 646,800 shares—of the ETF’s 49.75 million shares outstanding.
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