Policy noise may rattle markets, but Paul MacDonald maintains healthcare's long-term fundamentals are holding firm
This article was produced in partnership with Harvest ETFs.
Trade rhetoric is flaring again, but not all sectors buckle in the face of political noise. Healthcare, long viewed as a defensive stronghold, is still showing its strength -- even as short-term uncertainty casts a shadow. For Paul MacDonald, CIO and portfolio manager at Harvest ETFs, that’s no surprise.
“This isn’t the first time healthcare has been caught in the policy crossfire,” MacDonald says. “But if you look beyond the headlines, the sector is still grounded in strong fundamentals and long-term demand drivers.”
After a flat April for the S&P 500 Health Care Index -- while other sectors clawed back gains -- some advisors may be wondering if healthcare’s protective shield is starting to slip. MacDonald sees it differently: “Short-term volatility doesn't change the investment case. In fact, it often creates opportunity.”
Policy turbulence, but strong footing underneath
Nowhere is that pressure felt more acutely than among medical device companies, diagnostic firms, and manufacturers with cross-border supply chains.
“Some of these companies, like Agilent or Intuitive Surgical, are deeply exposed to China -- either through manufacturing or sales,” MacDonald explains. “They’ve been swept up in the broader tariff uncertainty, even with carve-outs in place for some products.”
Pharmaceutical firms, by contrast, have largely been spared. Their high-margin models and domestic supply chains offer some protection from cost pressures, though that hasn't insulated them from regulatory noise.
“It’s not that these proposals are new,” MacDonald explains. “Many of them have been attempted before. Most didn’t make it past the draft stage. So while the headlines are loud, the path to implementation is murky.”
Case in point: the revived “Most Favoured Nation” pricing rule, which aims to align U.S. drug prices with those in peer countries. A smaller pilot was shelved in 2020 due to legal concerns -- and MacDonald expects similar roadblocks now. “There just isn’t broad bipartisan support for it, and the legal precedent isn’t on solid ground.”
Meanwhile, concerns about billing practices in the managed care sector and patent protection for combination therapies are adding pressure, but not without pushback.
Still, MacDonald is quick to point out that political scrutiny is part of the terrain. “Healthcare is systemically important -- it’s always going to be under the microscope. That doesn’t mean the whole sector is broken. It just means we have to be selective and thoughtful.” The question for advisors is how to manage through that without losing sight of the bigger picture.
The value of diversification and elevated income
One way to do that, MacDonald says, is through selective diversification, something HHL, the Harvest Healthcare Leaders Income ETF (HHL:TSX), is designed to offer. HHL, is built with this kind of market complexity in mind. Its diversified portfolio includes exposure across medical technology, pharmaceuticals, diagnostics, and managed care -- mitigating the risk that comes from any one headline or regulatory shift.
“Not every sub-sector is impacted equally,” says MacDonald. “MedTech, for example, is finding its footing again. Some of the diagnostics and tools names are under pressure because they serve smaller biotechs, which may slow R&D in this climate. But we’re not seeing systemic deterioration -- just pockets of risk.”
Harvest ETFs want exposure to quality businesses with staying power, even if they’re temporarily out of favour, MacDonalds maintains. Innovation doesn’t stop because of headlines. If anything, periods like this often create opportunity.
In this environment, HHL’s covered call strategy adds an important buffer. By writing options on a portion of the portfolio (up to 33%), the fund generates elevated premiums -- particularly during volatile periods, helping to maintain its income target for investors.
“When volatility increases, it gives us more flexibility,” says MacDonald. “We can write less or write smarter, further out of the money, and still capture the income we need. That’s helped cushion short-term swings while preserving upside.”
HHL has paid consistent monthly distributions for over a decade, recently increasing its payout -- a notable achievement in a market defined by inconsistency.
Navigating forward, not reacting backward
For financial advisors, the healthcare sector continues to offer something few others can in this climate: long-term relevance with a built-in degree of defensiveness. While the headlines may linger, MacDonald believes the worst of the political risk is already being priced in.
“You can see it in how the market is responding. The incremental impact of negative headlines is fading. That tells you something,” he says.
Healthcare’s challenges aren’t going away - but neither is its role in the global economy.
