The sector should continue to see steady growth over the next few years as more Americans are now receiving insured treatments and boomers are going to need more drugs and medical services as they age.
While someone can buy a general health care ETF, investors may also want to buy into specific sub-sectors. There are number of sub industries that have different growth profiles and prospects. The main ones are biotech, pharmaceutical, medical device technology, hospitals and health care insurers.
For investors who want to play it safe, large, diversified pharmaceutical companies are the way to go, said Rob Cavallo, an analyst at RBC Global Asset Management. In the 2000s, these companies were out of favor—their pipelines were stagnant and a number of their high-performing drugs went off patent—but they're reinvesting themselves, Cavallo said.
They have more capital discipline, they care more about shareholders—many pay dividends—and their drug pipeline has been refreshed. Their size, though, allows them to make mistakes without sinking the company. Biotech firms, which are more growth-oriented, tend to make big gets on one or two drugs. The payoff can be big if things go right, but returns could plummet if they don't.
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More conservative investors may also want to look at health insurers, which should see more growth from Medicaid, Medicare and increased use of health-care exchanges, Schroer said.
One health-care niche that may not continue its run is hospitals. While this subsector will still see some growth, its post-Obamacare push is likely over, Schroer said. Over the last three years, it saw about 2 percent to 3 percent margin boost per year, thanks to the Affordable Care Act.
"That benefit is now in the rearview mirror, and hospitals will go back to their normal historical growth rate," Schroer said. "I don't foresee them having the same performance over the next three years."