XLV - HQH: Future Rate Cuts Will Help Fund's Performance

2024-05-11 04:55:02 ET

Summary

• Healthcare sector's performance lags behind S&P 500 due to high interest rates, regulatory uncertainty, and decreased capital expenditure in the sector.
• HQH's performance falls behind peer funds, but presents an opportunity for upside potential as the fund can close the performance gap once market conditions improve.
• The growth catalyst comes from the longevity of humans and increased medical spend.
• The current distribution rate of 9.8% has not been fully covered, and return of capital has been used to fund the majority of it. This can be destructive to NAV.

Overview

The healthcare sector's ( XLV ) performance continues to lag behind that of the S&P 500 ( SPY ). This can be attributed to a variety of things, such as a high interest rate slowing the growth and development of new drugs and technologies within the space, regulatory uncertainty, drug patent expires, and even the decoupling of the dependence on Covid related illnesses to drive demand. While each healthcare, pharma, or biotech company may have their own distant differences, a Closed End Fund like abrdn Healthcare Investors ( HQH ) gives us a diverse exposure that allows the ability to capture upside movements while mitigating downside risks....

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