Hospitals and Toilets

Nothing is certain but – yeah, yeah – death and taxes.

But what about hospitals and toilets?

Well, let’s look at the certainty of hospitals today (we’ll tackles toilets another time). After all, the Obama-care debate centers on the argument that “we’ll all use healthcare at some point in our lives.”

If Obama was a trader, he might say there is a “permanent bid” on healthcare. In layman’s terms, he’s saying:

The DEMAND for healthcare is universal and perpetual.

It’s a pretty powerful concept.

Constant, inelastic demand for healthcare services leads to dampened volatility in healthcare stocks.

Here’s a bar graph showing the Beta – a common measure of volatility – for each sector of the market. The S&P500 has a Beta of 1.0 because it’s the baseline for all comparisons.

You can see the financial sector is the most volatile. The Financial Select Sector SPDR ETF (XLF) has a Beta of 1.49, meaning that it’s 49% more volatile than the S&P500.

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The healthcare sector is much less volatile. With a Beta of 0.67, the healthcare fund XLV is 33% less volatile than the S&P500.

Healthcare stocks also hold up better in market downturnrns. Just look at the percentage drops from October 10, 2007 to March 10, 2009.

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So, compared to the broad market, healthcare stocks hold up better in bear markets and are less volatile.

We’ll take anything resembling “certainty” in today’s uncertain times.