Healthcare stocks have already staged a strong comeback in 2026. Now, ETF flows could provide another tailwind as investors begin rotating back into a sector that has lagged broader fund flows for much of the past three years.
J.P. Morgan’s latest U.S. Large Cap BioPharma report points to a notable shift. Healthcare ETF outflows diverged from broader ETF inflows starting in 2023, but that trend is now reversing, according to the bank’s positioning data through Sept. 2.
See More: Top Momentum Stocks
Healthcare is Already Outperforming
The rotation comes as healthcare fundamentals and performance have improved.
J.P. Morgan said U.S. large-cap BioPharma gained 22% year to date, compared with a 14% rise for the S&P 500. The group also outperformed in 2025, gaining 30% versus 18% for the broader index. The bank attributes the gains to company-specific strength, continued sector rotation and a reduced drag from the strong performance of AI and technology stocks on healthcare fund flows.
Valuations could provide another reason for investors to look at the group. Large-cap BioPharma trades at about a 5% discount to the S&P 500 on next-12-month earnings, while the discount widens to roughly 15% when Eli Lilly And Co (NYSE:LLY) is excluded.
J.P. Morgan believes the group still has room to run, citing lower policy risk, solid fundamentals and upcoming pipeline catalysts. The bank also sees healthcare as relatively insulated from broader economic and AI-related risks.
Where the ETF Money Could Go
The report’s sector-flow table shows $8.3 billion of year-to-date inflows into healthcare ETFs, equal to 5.9% of assets, as of Sept. 2. That compares with $51.7 billion for technology, or 7.3% of assets.
For investors seeking broad exposure, the Health Care Select Sector SPDR ETF (NYSE:XLV) is particularly relevant. Eli Lilly represents 14.67% of the fund currently, followed by Johnson & Johnson (NYSE:JNJ) at 10.72%, AbbVie Inc (NYSE:ABBV) at 7.35% and Merck & Co Inc (NYSE:MRK) at 6.02%. Gilead Sciences Inc (NASDAQ:GLD) also ranked among its top 10 holdings at 3%.
That gives XLV exposure to three of J.P. Morgan’s top picks, Eli Lilly, Gilead and AbbVie.
For investors looking for a more diversified healthcare basket, the Vanguard Health Care ETF (NYSE:VHT) offers broader exposure across the sector. Meanwhile, the SPDR S&P Biotech ETF (NYSE:XBI) provides a higher-beta way to play a potential biotech rotation, with 99.9% of its portfolio classified as biotechnology.
The key question now is whether healthcare ETF flows can catch up with the sector’s performance. If they do, JPMorgan’s emerging rotation thesis could have another leg to run.
Photo: Shutterstock
Login to comment