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Special Report
What a Mixed Midterm Result Could Mean for These 2 Health Care ETFsBy Nathan Reiff. Article Published: 10/19/2026. 
Key Points
- Analysts expect a divided government after the midterms, a condition that has historically favored healthcare stocks because of legislative gridlock that preserves existing policy.
- XLV provides diversified, low-fee exposure to 73 healthcare companies spanning pharmaceuticals, managed care, services, and medical devices, with Eli Lilly and Johnson & Johnson as top holdings.
- IHF targets healthcare providers more narrowly and has outperformed XLV so far this year, though its heavy UnitedHealth Group weighting makes it a riskier, more concentrated choice.
- Special Report: The Healthcare AI Trend Wall Street Is Watching Closely
As the midterm election approaches, investors may try to anticipate how different potential outcomes could affect the market. After two years of unified Republican control, polls and analyses predict a divided government, with at least one chamber of Congress controlled by Democrats beginning in 2027. Of course, these remain predictions and are therefore difficult to use as a basis for investment decisions before the results are confirmed. Nonetheless, a divided government may mean that one sector could thrive: Historically, healthcare stocks tend to perform well in such environments. Two exchange-traded funds (ETFs), in particular, may be worth considering for investors anticipating a favorable environment for the sector in the coming months. Why Divided Government Can Be a Boost to Health Care Names
Healthcare stocks can benefit from divided government because this electoral outcome often leads to legislative gridlock. For the sector, this means that a push from Democrats to tighten regulations on issues such as drug prices will likely meet resistance from lawmakers on the right. Similarly, any Republican efforts to repeal the Affordable Care Act or make other sweeping changes may run into additional roadblocks. The result could be a prolonged period of stability in health care laws and regulations, which tends to benefit companies that are already performing well. XLV: A Good Time for a Broad Sector FundSector-focused funds can be effective plays for investors anticipating broad drivers of growth in one corner of the market. The Health Care Select Sector SPDR Fund (NYSEARCA: XLV) remains a go-to option for broad exposure to healthcare names, even nearly 30 years after its launch. XLV combines an affordable annual fee of 0.08% with robust assets of more than $44 billion and similarly strong trading volume. The fund holds about 73 large-cap names across the domestic healthcare space. Despite its relatively long list of positions, XLV is concentrated in a handful of companies, including Eli Lilly and Co. (NYSE: LLY) and Johnson & Johnson (NYSE: JNJ), which represent about 15% and 10% of the total portfolio, respectively. This means that shifts in a few prominent names can have an outsized impact on XLV's overall performance—though so far in 2026, both LLY and JNJ have already outperformed the broader market. Nonetheless, XLV remains a strong benchmark for the industry as a whole. One of the fund's primary appeals is that it does not specialize in a single subindustry. Instead, it provides diversified exposure to companies in the pharmaceutical, managed care, services and medical device industries. This makes it one of the most comprehensive single investments available to investors expecting a divided government and the potential benefits it might bring to the sector overall. IHF: Tapping Into Companies That Benefit Most From the Status QuoManaged care and healthcare services firms face the threat of significant regulatory upheaval under fully unified governments that can more easily pass legislation. For this reason, these firms may be among the most likely to benefit from the status quo in Washington, D.C. Investors looking for a more targeted approach to the sector than XLV offers might therefore consider the iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF), a fund with a special focus on this subindustry across 63 portfolio positions. Like XLV, IHF focuses primarily on large-cap stocks, but it also allocates a smaller portion of its portfolio to mid- and even small-cap companies. Given IHF's unique investment strategy, investors should be prepared to pay a bit more: Its expense ratio is more than four times that of XLV. Still, IHF has already exceeded XLV's year-to-date (YTD) performance of about 15%, with its own returns at roughly 23%. Despite its relatively broad portfolio, IHF is, like XLV, heavily concentrated in a few names, with a single holding—UnitedHealth Group Inc. (NYSE: UNH)—accounting for about 21% of the basket. This often means investors use IHF as a short-term tactical tilt. Buy-and-hold investors looking for healthcare options should be aware that IHF's concentration could leave it more susceptible to volatility than an option such as XLV. A bet on IHF is a more aggressive position than a bet on XLV, and it comes with the potential for both higher rewards and greater risks. For those with a strong conviction that the midterm results could benefit the sector, however, IHF is an attractive way to make a larger bet. . |
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