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Wall Street JournalAs AI Valuations Stretch, Health Care ETFs Step Into The Growth Spotlight
Health care ETFs could emerge as one of the stronger performers in 2026 as investors grow cautious about pricey AI stocks.
• State Street Health Care Select Sector SPDR ETF shares are trending higher. Why is XLV stock advancing?
Analysts, cited by Reuters, see support coming from rising demand for weight-loss drugs, policy tailwinds and the sector's defensive qualities.
Funds such as State Street Health Care Select Sector SPDR ETF (NYSE:XLV) and Vanguard Health Care Index Fund ETF (NYSE:VHT) offer exposure to these themes without the valuation risks tied to crowded tech trades.
Weight-Loss and ETFs
Health care has re-emerged as a favored allocation as markets grow more selective following a volatile 2025. Analysts say the shift reflects both valuation discipline and improving earnings visibility, particularly as demand for weight-loss drugs expands across global markets.
Also Read: Top 3 Health Care Stocks Which Could Rescue Your Portfolio This Month
Morgan Stanley has highlighted health care as a potential outperformer this year, citing the growing adoption of GLP-1 drugs used to treat obesity and diabetes, according to Reuters. That trend is feeding through to large pharmaceutical companies, biotech firms and health care providers, many of which sit at the core of major health care ETFs.
Concentration and Diversification
XLV, one of the largest health care ETFs, offers concentrated exposure to U.S. industry heavyweights, including pharmaceutical manufacturers, managed-care firms and medical device makers. Members of its portfolio include Eli Lilly & Co. (NYSR: LLY) and AbbVie Inc (NYSE:ABBV). Its tilt toward large-cap names has helped keep volatility in check while still capturing earnings growth tied to drug innovation and rising health care utilization.
For investors seeking broader diversification, the VHT spans hundreds of health care stocks across pharmaceuticals, biotechnology, health care equipment and services.
Intuitive Surgical Inc (NASDAQ:ISRG), Abbott Laboratories (NYSE:ABT), and UnitedHealth Group Inc (NYSE:UNH) are among its top holdings. The fund's wider exposure makes it less reliant on any single drug or company, an attribute that has gained appeal as investors look to reduce stock-specific risk.
Both XLV and VHT are up more than 1.5% on Tuesday.
Biotechnology-Focused Funds
More specialized health care ETFs are also drawing interest. Biotechnology-focused funds, such as the iShares Biotechnology ETF (NASDAQ:IBB) and State Street SPDR S&P Biotech ETF (NYSE:XBI), which tend to be more volatile, offer leveraged exposure to drug pipelines linked to weight management and metabolic diseases. Both are trading in the green today.
Why Health Care ETFs Are Gaining Momentum Now
Health care's appeal is not purely growth-driven. The sector also carries defensive characteristics, supported by steady demand, aging populations and recurring revenue streams. These factors are particularly attractive as investors brace for potential policy shifts, slower economic growth and continued uncertainty around interest rates.
With AI-heavy portfolios increasingly crowded, health care ETFs may start being used as a rebalancing tool this year, rather than a speculative bet.
For investors looking to stay invested in innovation while stepping away from overheated technology trades, health care-focused ETFs are emerging as a practical middle ground, offering growth, stability and a clearer earnings path in a market that is demanding selectivity.
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