The healthcare sector came under pressure in 2025, as federal spending cuts slashed more than $1 trillion from health programs in the biggest rollback of federal support for healthcare in U.S. history. Tariffs further clouded the outlook for the sector, which could face a 250% tariff on drugs and devices made outside the U.S.
Yet despite these historic headwinds, healthcare stocks are still up 13% for the year, as measured by the State Street Health Care Select Sector SPDR ETF (XLV 1.19%). The fund, designed to track the performance of healthcare suppliers, medical device makers, and pharmaceutical and biotech stocks, is only modestly trailing the S&P 500's 17% year-to-date rise.
NYSEMKT: XLV
Key Data Points
What explains the sector's resilience? Health care is sometimes called the forever industry, because nothing, not even Washington, can stop demand for it in a nation where 61 million people are 65 or older, or a world where the number of people aged 60 or older will reach 2.1 billion by 2050.
There's never a truly bad time to invest in this sector, though some years are better than others. With the sector having just received its worst news in many years, I see significant potential for the narrative to improve in 2026. With midterm elections now just months away, Washington will be highly motivated to pass a bill extending health insurance subsidies, rather than allowing premiums to spike for millions of voters in an election year. President Donald Trump may also give tariff dispensation to a handful more healthcare companies, as he did for Pfizer, or the Supreme Court could even strike down his tariffs in one fell swoop.
All of this is to say that in 2026, the news around healthcare stocks will likely go from bad to less bad. That makes today a compelling time to invest in the forever industry. To catch the sector-wide upside, I have one forever fund in mind.
The "forever fund" of the $9.25 trillion sector
The Fidelity Select Medical Technology and Devices Portfolio (FSMEX 1.80%) was left behind in 2025's rally, with shares declining 2.5% year to date. But its portfolio contains 64 medical device companies that aren't going anywhere.
Boston Scientific (BSX 1.75%), a medical device maker with more than 13,000 products that help treat over 44 million patients around the world, makes up 12% of its holdings.
In 2024, its net sales rose by 18%, with double-digit percentage growth in operational net sales in the U.S., European, Asia Pacific, Latin American, and Middle East and Africa markets. In 2025, it's kept up that momentum, increasing net sales by 20% last quarter.
Image source: Getty Images.
Although Boston Scientific doesn't pay a dividend, many of the fund's other 64 holdings are prolific dividend payers. Abbott Laboratories (ABT 0.96%), a leader in diabetes and cardiovascular treatments, is a rare Dividend King, with 51 years of back-to-back annual dividend hikes. Stryker (SYK 1.69%), a leader in neurotechnology and orthopedics devices that serve 150 million patients, just announced its 33rd dividend increase. Together, these companies make up almost 10% of the fund's holdings.
Overall, the fund contains enough income stocks to deliver a powerful income stream. While it doesn't have a regular dividend, it shelled out $5.96 in distributions per share in 2024, which amounted to a 9% yield for anyone who owned shares at the beginning of that year. In 2025, it's paid out $4.67 in distributions per share, amounting to a 7.5% yield for anyone who owned shares at the start of this year.
The income may not be regular or as predictable as income investors might like, but it is hefty, and compares very favorably to the average 1.14% yield of the S&P 500. Not only that, but the fund has a long history of delivering market-beating capital appreciation. Since its 1998 inception, it has delivered average annual gains of 13%, compared to 8.9% for the S&P 500.
I believe that the Fidelity Select Medical Technology and Devices Portfolio's recent underperformance will soon come to an end, as the aforementioned pressures on the healthcare sector ease in 2026, and as its prodigious income stream entices more and more investors amid falling interest rates. This fund is a buy opportunity in a discounted sector.
