Small Cap Stocks Have This Powerful Trend Behind Them


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Health care is arguably the most exciting sector of the stock market — with good reason. We’re growing older by the day and companies continue to develop ways to delay Father Time. Between 2020 and 2040, total annual health care expenditures are forecast to grow by $139 billion, or 67%*. This growth is injecting opportunities into the market, especially within small caps.

Since the financial crisis trough on March 9, 2009, the Russell 2000 Index has advanced 265.3% through the end of June 2015. Health care, which now accounts for 16% of the Russell 2000, was a large contributor to this performance. In fact, the sector experienced the largest change in weighting over the past decade, gaining nearly 4 percentage points since the second quarter of 2005, according to Russell Indexes. Financial services is the only sector with a bigger weighting.

Valuation concerns have been raised on health care industries such as biotechnology, but appealing fundamentals remain for long-term investors. By 2030, an estimated 70 million people in the United States will be age 65 or older. Of this group, it is expected that 60% will be managing more than one chronic health condition. With a pill for every ill, prescription drug sales were already up 13.1% year-over-year in 2014, hitting a record $374 billion in total sales.

“The performance of the Health Care sector continues to be the story within the Russell 2000 Index,” said Mat Lystra, Senior Research Analyst with FTSE Russell. “Like Technology in the late 1990s and Real Estate in the mid-2000s, Health Care has captivated the market. What remains unclear is whether structural and regulatory changes in the U.S. can sustain expansion of the sector.”

Investors looking to avoid too much exposure to single companies may want to consider small-cap mutual funds that place an emphasis on health care.

This is a sponsored post written by The Cheat Sheet on behalf of Nationwide®.

*Total annual healthcare expenditure forecast provided by Russell Indexes.

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