Trade war makes it hard to make directional calls. Consequently, we think it makes sense to focus less on making directional macro calls (most of which will be affected by trade developments that are hard to predict) and concentrate more on idiosyncratic stories.
Following years of outperformance, Healthcare Equipment’s returns fell into line with those of Pharmaceuticals about a year ago. Current levels are reasonably attractive, being roughly in the middle of the range of the past 12 months. Given the length of the market’s consolidation, plus the renewed push in Congress to lower healthcare costs, we think now is a good time to gain exposure to a sector that has stronger long-term prospects than Pharma. We therefore buy the XHE ETF against the IHE ETF.
Healthcare Equipment has outperformed and the trade has generated 9% return to mid-August 2019. We raised the stop-loss on 19 June to lock in 4% profit. On 24 July we raised the stop-loss again to lock in 5% profit.