After nearly a year on the sidelines, State Street Investment Management upgrades its stance on healthcare, citing falling valuations, improving earnings, and advances in medical innovation, signalling a potential shift into a more cyclical phase for the sector.
State Street Investment Management has shifted its stance on healthcare, moving the sector from neutral to positive in its Q3 2026 outlook after almost a year on the sidelines. The change returns healthcare to the firm’s favoured list of sector trades and reflects a view that much of the bad news that weighed on the group last year may already be reflected in prices.
The case rests in part on valuation. State Street said healthcare’s forward earnings multiple versus the wider market has fallen into the lowest fifth of its range over the past 15 years, making it one of the cheapest corners of the equity market by that measure. Earnings expectations are also improving, with the firm projecting sector growth of 19.3% in 2027, second only to technology among all major sectors.
The upgrade follows a period of weakness driven by concern over drug-pricing rules and slower volumes of medical procedures. But State Street argued that those pressures are now better understood by investors and may have limited room to surprise on the downside.
For investors seeking broad exposure, the State Street Health Care Select Sector SPDR ETF, better known by its ticker XLV, tracks the Health Care Select Sector Index and holds companies across pharmaceuticals, biotechnology, medical devices, providers, life sciences tools and health care technology. State Street’s US fund page says XLV held 60 companies as of 10 July 2026 and carried a 0.08% gross expense ratio. The fund’s best-known holdings include Eli Lilly, Johnson & Johnson and AbbVie. A separate fact sheet dated 13 July put assets under management at $41.475bn and listed UnitedHealth and Merck among the top five positions.
The renewed interest is notable because institutional positioning remains relatively light. State Street said many professional investors are still underweight healthcare, leaving scope for further buying if the earnings outlook continues to improve. Over the past month, flows into the fund category have also approached a five-year high, suggesting that some investors are already beginning to rotate back into the sector.
Innovation is a central part of the bull case. State Street highlighted progress in obesity treatments, noting that next-generation drugs are delivering not only meaningful weight loss but also improvements in cardiovascular risk markers. The firm also pointed to advances in Alzheimer’s research, including efforts to improve drug delivery into the brain, and early gene-editing data that could support durable reductions in cholesterol.
Cancer research has added to the optimism. According to State Street, presentations at this year’s American Society of Clinical Oncology meeting showed progress in early-stage breast cancer, non-small-cell lung cancer and pancreatic cancer. At the same time, managed care, which had been a drag on the sector, appears to be stabilising as growth in physician visits and procedures cools.
That does not mean the outlook is risk-free. State Street still sees policy uncertainty around drug pricing and reimbursement as an overhang, while demand for medical technology remains soft as procedure growth normalises. Even so, the firm’s base case is that healthcare’s earnings growth will be relatively modest this year, at 2.6%, before a stronger rebound in 2027 as biopharma innovation and steadier managed care trends take hold.
For investors who want income as well as sector exposure, State Street also offers the Health Care Select Sector SPDR Premium Income ETF, XLVI, which uses a covered-call approach on XLV holdings. According to the fund’s fact sheet, XLVI invests across the same broad healthcare universe and seeks to generate additional income by selling call options, with a gross expense ratio of 0.35%.
More broadly, healthcare retains a defensive appeal that has long made it a staple for long-term portfolios. Yet State Street’s latest turn suggests the sector may also be entering a more cyclical phase, where valuation, innovation and earnings recovery combine to make it more than just a haven in uncertain markets.
- https://www.etftrends.com/sector-investing-content-hub/drug-pipeline-state-street-healthcare/ – Please view link – unable to able to access data
- https://www.ssga.com/us/en/individual/etfs/state-street-health-care-select-sector-spdr-etf-xlv – The State Street Health Care Select Sector SPDR ETF (XLV) aims to replicate the performance of the Health Care Select Sector Index, encompassing companies in pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology. As of July 10, 2026, the fund holds 60 companies with a gross expense ratio of 0.08%. The top holdings include Eli Lilly and Company, Johnson & Johnson, and AbbVie Inc. The fund’s inception date is December 16, 1998, and it is listed on the NYSE ARCA under the ticker XLV. ([ssga.com](https://www.ssga.com/us/en/individual/etfs/state-street-health-care-select-sector-spdr-etf-xlv?utm_source=openai))
- https://finance.yahoo.com/quote/XLV/ – The State Street Health Care Select Sector SPDR ETF (XLV) is an exchange-traded fund that tracks the performance of the health care sector within the S&P 500 Index. As of June 4, 2026, XLV closed at $152.40, with a 52-week range between $127.96 and $160.59. The fund has net assets of $38.25 billion and an expense ratio of 0.08%. Its top holdings include Eli Lilly and Company, Johnson & Johnson, and AbbVie Inc. The fund is listed on the NYSE Arca under the ticker symbol XLV. ([finance.yahoo.com](https://finance.yahoo.com/quote/XLV/?utm_source=openai))
- https://etf.pionline.com/fund/XLV – The XLV ETF Fact Sheet provides detailed information about the State Street Health Care Select Sector SPDR ETF. As of July 13, 2026, the fund has assets under management of $41.475 billion and an expense ratio of 0.08%. The top five holdings are Eli Lilly & Co. (16.19%), Johnson & Johnson (10.04%), AbbVie, Inc. (7.12%), UnitedHealth Group, Inc. (6.37%), and Merck & Co., Inc. (5.45%). The fund tracks the S&P Health Care Select Sector Total Return Index and employs a direct replication method. ([etf.pionline.com](https://etf.pionline.com/fund/XLV?utm_source=openai))
- https://www.ssga.com/uk/en_gb/institutional/etfs/state-street-health-care-select-sector-spdr-etf-xlv – The State Street Health Care Select Sector SPDR ETF seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Health Care Select Sector Index. The fund includes companies from industries such as pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology. As of July 14, 2026, the fund’s benchmark is the Health Care Select Sector Index. ([ssga.com](https://www.ssga.com/uk/en_gb/institutional/etfs/state-street-health-care-select-sector-spdr-etf-xlv?utm_source=openai))
- https://www.kiplinger.com/investing/etfs/603392/top-healthcare-etfs-to-buy-now – This article outlines the best broad-based health care exchange-traded funds (ETFs) to buy, emphasizing the sector’s defensive qualities and growth potential due to consistent demand, innovation in biotech, and an aging population. Investing in individual health care stocks can expose one to high risks, such as volatility in biotech, patent cliffs in pharmaceuticals, and regulatory pressure on providers. ETFs, by contrast, offer diversified exposure to the sector’s six sub-industries, balancing risk and return. The article lists five top-performing, long-term-friendly health care ETFs based on low fees, high liquidity, and reputable management. ([kiplinger.com](https://www.kiplinger.com/investing/etfs/603392/top-healthcare-etfs-to-buy-now?utm_source=openai))
- https://www.kiplinger.com/investing/etfs/604295/best-spdr-etfs-to-buy-and-hold – This document from Kiplinger outlines six of the best SPDR ETFs to buy and hold for long-term investors, highlighting their strategies, performance data, and portfolio makeup as of March 31, 2026. The Financial Select Sector SPDR ETF (XLF) tracks financial sector stocks in the S&P 500. Despite recent volatility, it’s shown a strong 10-year total return of 225.9%. Top holdings include Berkshire Hathaway and JPMorgan Chase. The article also discusses other SPDR ETFs, providing insights into their performance and investment strategies. ([kiplinger.com](https://www.kiplinger.com/investing/etfs/604295/best-spdr-etfs-to-buy-and-hold?utm_source=openai))
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
8
Notes:
The article reports on State Street Investment Management’s recent upgrade of the healthcare sector outlook to positive in Q3 2026. This information aligns with State Street’s own publication titled ‘Sector Market Perspectives: Q3 2026’, published last week. ([ssga.com](https://www.ssga.com/us/en/individual/insights/sector-market-perspectives-q3-2026?utm_source=openai)) The article appears to be based on this recent publication, suggesting freshness. However, the exact publication date of the article is not provided, so a definitive assessment is challenging. Additionally, the article includes specific data points, such as the projected 19.3% earnings growth in 2027, which are consistent with State Street’s report. This consistency supports the article’s freshness. Nonetheless, without a clear publication date, some uncertainty remains.
Quotes check
Score:
7
Notes:
The article includes specific figures and projections, such as the 19.3% earnings growth in 2027, which are consistent with State Street’s ‘Sector Market Perspectives: Q3 2026’ report. ([ssga.com](https://www.ssga.com/us/en/individual/insights/sector-market-perspectives-q3-2026?utm_source=openai)) However, the article does not provide direct quotes from State Street’s publication, making it difficult to verify the exact wording. The absence of direct quotes raises concerns about the originality and independence of the content.
Source reliability
Score:
6
Notes:
The article is hosted on ETF Trends, a platform that aggregates financial news and analysis. While ETF Trends is a known source for financial information, it is not a primary news outlet. The article appears to be summarizing State Street’s own publication, which is a reputable source. However, the lack of direct quotes and the reliance on a single source for the information raise concerns about the independence and reliability of the content.
Plausibility check
Score:
8
Notes:
The claims made in the article, such as the upgrade of the healthcare sector outlook to positive and the projected 19.3% earnings growth in 2027, are plausible and align with industry expectations. The article also mentions specific data points, such as the 0.08% gross expense ratio of the XLV ETF and its holdings, which are verifiable. However, the lack of direct quotes and the reliance on a single source for the information raise concerns about the accuracy and independence of the content.
Overall assessment
Verdict (FAIL, OPEN, PASS): FAIL
Confidence (LOW, MEDIUM, HIGH): MEDIUM
Summary:
The article summarizes State Street’s recent publication on the healthcare sector outlook. While the information aligns with State Street’s own report, the lack of direct quotes, reliance on a single source, and absence of independent verification sources raise concerns about the content’s originality, independence, and reliability. These issues prevent a PASS verdict.