The technology sector has drawn strong interest from Canadian investors in recent years, driven by rapid global adoption of new technologies, frequent product innovation, rising revenues and notable stock-price gains. That enthusiasm, however, has made some investors wary of missing out. Technology shares have also been volatile: the tech-heavy NASDAQ index fell about 33% in 2022. While some investors are buying technology stocks at lower prices, others are shifting attention to less volatile sectors—most notably health care.
Why consider investing in health care?
The health care sector emerged as a focus of global investment beginning in early 2020 as the pandemic accelerated medical innovation and technology adoption. Governments, research organizations and pharmaceutical companies poured resources into developing vaccines, treatments and supporting technologies, creating momentum that continues today.
Historically, health care stocks have been less volatile than many technology names. The sector is also underpinned by durable long-term trends: an aging global population, rising health awareness and growing health care spending in emerging markets such as China and India. Those demographic and economic forces support steady demand for prescription medicines, medical devices and health services over time.
Pharmaceutical and biotechnology firms are advancing treatments across a broad range of conditions, from targeted cancer therapies to therapies for autoimmune disorders, diabetes and cardiovascular disease. Many of these companies generate reliable annual revenue that enables ongoing investment in research and development, a robust pipeline of new candidates, and strategic acquisitions that sustain long-term growth.
At the same time, digital health innovations—electronic health records, telehealth platforms, remote monitoring and health-focused mobile apps—are broadening access and creating new markets. The digital health market is projected to see significant expansion through the mid-2020s, boosting investor interest in companies that combine clinical expertise with scalable technology.
Another advantage of health care is its relative resilience to economic and political cycles. Medical care and treatments remain needed regardless of market conditions, which helps many health care companies deliver more predictable cash flow and revenue during downturns. That predictability can make health care an attractive option for investors seeking stability in uncertain markets.
Where to invest in health care?
Health care is a broad sector that includes medical device manufacturers, pharmaceutical and biotech companies, health care providers, life-science tools and services, and health insurers. Each segment participates in the scientific advances and clinical breakthroughs that address major conditions such as cancer, multiple sclerosis and chronic metabolic diseases.
The global health care market is large and diverse. For example, national health expenditures in major economies run into the trillions of dollars, reflecting the essential nature and scale of the industry.
Investors can gain exposure to health care in several ways. One approach is to buy individual company shares, which requires detailed research into a company’s clinical pipeline, regulatory outlook and financial strength. Another approach—often more suitable for many investors—is to buy health care exchange-traded funds (ETFs). ETFs offer access to a diversified basket of health care companies, reducing single-stock risk while capturing the sector’s growth potential.
Investing in health-care ETFs
Healthcare-focused ETFs can provide both growth exposure and income potential while reducing company-specific risk through diversification. Some ETFs also use option strategies to enhance yield, offering investors steady monthly distributions alongside the possibility of capital appreciation.
For long-term investors, the large-cap health care segment often offers a combination of established, well-capitalized firms and ongoing innovation. These companies tend to benefit from demographic tailwinds and steady global demand for treatments and medical solutions.
Active ETFs that use income-enhancing strategies—such as covered-call writing—seek to deliver higher-income yield without completely sacrificing participation in market upside. That can be especially appealing for retirement-focused investors or those looking to supplement cash flow during periods of market volatility.
What is a covered-call writing strategy?
A covered-call strategy involves selling call options on stocks that the fund already owns. The fund receives option premiums as additional income. In return, it grants the option buyer the right—but not the obligation—to buy the underlying stock at a predetermined strike price within a set time frame.
Call options can enhance cash flow and provide partial downside protection because the premiums collected reduce the fund’s net cost basis in the holdings. Over time, option income can help smooth returns and lower volatility relative to a plain equity portfolio. In some jurisdictions, the income generated by option writing is treated as capital gains, which may be taxed differently from dividend income.
When managed actively, a covered-call strategy can be adjusted to market conditions—writing more options when volatility is high to capture larger premiums, or writing fewer options when the fund wants greater upside participation. That flexibility helps transform market volatility into an income-generating opportunity.
Is a health care ETF for you?
Health care-focused ETFs using covered-call or other income-enhancing strategies can be attractive for investors seeking sector exposure with a focus on yield and lower single-stock risk. These funds typically include blue-chip pharmaceutical and medical-device companies, offering a diversified way to benefit from long-term medical innovation without the concentration risk of individual stocks.
Compared with buying many individual equities, ETFs often offer lower trading costs, simpler portfolio management and immediate diversification. For investors prioritizing income, stability and exposure to a vital global industry, a health care ETF can be a useful component of a balanced portfolio—especially during periods of heightened market uncertainty.
Read more about investing:
- 3 ways to recession-proof your RRIF
- What do rising interest rates mean for retirement savings?
- We’re living longer—here are two ways to boost retirement savings and income
- What does high inflation mean for your retirement savings?
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