J.P. Morgan analysts have identified a potential shift in investor capital toward healthcare exchange-traded funds, citing a reversal in the trend that saw the sector lag behind broader fund flows for the past three years. According to the bank’s positioning data through September 2, 2026, the divergence between healthcare ETF outflows and broader inflows is ending.
The report highlights that U.S. large-cap BioPharma has already demonstrated strong performance. The sector gained 22% year to date in 2026, outperforming the 14% rise of the S&P 500. This outperformance continued into 2025, where the group gained 30% compared to an 18% increase for the broader index.
J.P. Morgan attributes the sector's gains to company-specific strength, continued sector rotation, and a reduction in the drag previously caused by the strong performance of AI and technology stocks. The bank also points to valuations as a factor, noting that large-cap BioPharma trades at a roughly 5% discount to the S&P 500 on next-12-month earnings. This discount widens to about 15% when Eli Lilly and Co. is excluded from the comparison.
Regarding ETF flows, the report indicates that healthcare ETFs have seen $8.3 billion in year-to-date inflows as of September 2, representing 5.9% of assets under management. This compares to $51.7 billion in inflows into technology ETFs, which account for 7.3% of assets.
The bank recommends the Health Care Select Sector SPDR ETF (NYSE: XLV) for broad exposure. As of the report, XLV’s top holdings include Eli Lilly at 14.67%, Johnson & Johnson at 10.72%, AbbVie Inc. at 7.35%, and Merck & Co. Inc. at 6.02%. Gilead Sciences Inc. also ranked among the top 10 holdings at 3%. For investors seeking a more diversified basket, the Vanguard Health Care ETF (NYSE: VHT) is suggested, while the SPDR S&P Biotech ETF (NYSE: XBI) is noted for providing a higher-beta way to play a potential biotech rotation.
