A health care fund with a strong track record could be in a sweet spot for investors who are looking to take some risk off the table, according to Bank of America. Investment and ETF strategist Jared Woodard said in a note to clients that health care equipment and services is an industry that has been a winner for investors in the past and is set up for another strong run. “Since 2006, HCES has been a ‘goldilocks’ trade for investors looking for high-beta healthcare exposure without extreme volatility,” the note said. The firm’s top rated ETF in the space is the iShares Medical Devices ETF (IHI) , which helps investors avoid the volatile biotech stocks found in broader health care sector funds. The IHI has an expense ratio of 0.39%, and its top holdings include Thermo Fisher Scientific and Abbott Laboratories . The fund has a total return of just under 8% so far this year, and has averaged a return of 10.7% over the last five years. Over the past 10 years, the average total return jumps above 15%. IHI 5Y mountain The IHI has averaged a total return of more than 10% over the past five years. Bank of America listed cooling inflation and a potential recession as reasons that medical technology could outperform from here. The ETF is trading at a higher earnings multiple than its historical average, which could be a concern if there is a broad market downturn. However, the industry’s multiple actually looks cheap on a historical basis compared to the broader market, Woodard said. Additionally, the industry has not been particularly popular with investors in recent years, which could reverse and give the fund a boost, Bank of America said. The IHI has seen outflows of $432 million this year, according to FactSet. “2023 could be the third year in a row for HCES ETF outflows despite positive returns YTD (8.5%). In our view, the trade is far less crowded than broad healthcare for investors looking for defensive exposure,” Woodard said. — CNBC’s Michael Bloom contributed reporting.
