By Philip van Doorn
Matthew Renna of Westfield Capital Management explains how he has been taking advantage of an improving financial landscape for healthcare innovators
These are four holdings of the Harbor Health Care ETF, which had a three-year average annual return of 22.7% through Nov. 30.
The healthcare sector of the U.S. stock market as a whole is cheaply priced, which can make it attractive to investors concerned that the S&P 500 has gotten too expensive several years into a bull market. But this is also a sector in which deep industry knowledge can be particularly important for fund managers’ investment selection and timing.
The S&P 500 healthcare sector trades at a forward price/earnings ratio of 18.2. That is the component stocks’ prices divided by consensus 12-month earnings-per-share estimates among analysts polled by FactSet, weighted by market capitalization. That forward P/E is a 12% premium to the sector’s average 10-year forward P/E of 16.3. The full S&P 500 SPX has a forward P/E of 22.4, which is a 19% premium to its 10-year average forward P/E of 18.8.
The Harbor Health Care ETF MEDI is now three years old and has performed so well that it has been rated five stars (the highest rating) within Morningstar’s U.S. Fund Health category. The exchange-traded fund’s subadviser is Westfield Capital Management, which is based in Boston and oversees about $25 billion in client assets.
Matthew R. Renna, who co-manages MEDI with Westfield Capital Chief Executive William A. Muggia, told MarketWatch that the healthcare sector of the broad stock market was benefiting from several developments. “We are most enthusiastic about the innovation in biotech and the return of M&A,” he said. “We have had six acquisitions this year within the biopharma space.” By this he meant that six of the fund’s holdings had been acquired.
He also expects the volume of acquisitions of biotechnology innovators to accelerate in 2026. But another trend he pointed to was an increase in the number of smaller biotech companies that have been successful in gaining regulatory approvals for new medications and becoming profitable as they have brought new products to the market.
‘The beauty of biotech today versus five years ago is we have a number of examples of companies that launched products on their own and became self-sustaining.’Matthew R. Renna of Westfield Capital Management
Renna said that he and Muggia were following “a barbell strategy,” with mature companies in the pharmaceutical, life-science tools, medical-technology and biotech spaces on one side. “And then the other end of the barbell is earlier-stage companies that have much stronger growth profiles,” he said.
Renna emphasized that he and Muggia “can go anywhere” within the health space. He said that they were “very constructive on the biopharma side,” where they had been seeing “the bulk of innovation and mispricing” in the stock market.
This is a concentrated portfolio of 39 stocks, with the top 10 holdings making up 69% of the fund as of its most recent portfolio listing on Tuesday.
Company % of MEDI ETF 2025 total return through Dec. 10
Eli Lilly & Co. 19.2% 29.7%
Ascendis Pharma A/S 17.0% 46.2%
AbbVie Inc. 6.8% 31.2%
Legend Biotech Corp. 5.8% -28.2%
Masimo Corp. 4.1% -15.4%
Vaxcyte Inc. 3.8% -46.9%
Revolution Medicines Inc. 3.6% 78.1%
UnitedHealth Group Inc. 3.5% -33.5%
Natera Inc. 2.8% 47.3%
ADMA Biologics Inc. 2.7% 16.5%
Sources: Harbor Capital Advisors, LSEG
Eli Lilly (LLY) has been so successful competing within the GLP-1 weight-loss space that it now has a dominant weighting in the healthcare sector of the S&P 500 SPX. The stock makes up 14.3% of the State Street Health Care Select Sector SPDR ETF XLV. But it has a 19.2% weighting in the MEDI portfolio.
Renna said Lilly’s lead in the GLP-1 race seemed “insurmountable,” and regarding the size of the company’s position within the MEDI portfolio, he said: “We tend to let our winners ride.”
“They not only have the dominant share, to crush Novo Nordisk (NVO) on the injectable side, but they also have a very competitive oral option that will be on the market mid-next year,” he said.
Renna also said that Lilly had “a much better molecule in terms of weight-loss viability,” that Lilly had been more effective in marketing its GLP-1 medications globally than Novo Nordisk had been, and that Novo Nordisk was “bumping up against patent expiration.”
Innovators moving toward profitability
“The beauty of biotech today versus five years ago is we have a number of examples of companies that launched products on their own and became self-sustaining,” Renna said.
One example is Ascendis Pharma (ASND), which is based in Denmark and became profitable on an operating basis during the third quarter. MEDI holds the company’s American depositary receipts. “We are more bullish on Ascendis Pharma than we were at $125,” Renna said while discussing the ETF’s large position in the ADR, which closed at $201.24 on Wednesday.
Ascendis has developed and brought to market two medications, Yorvipath and Skytrofa, which are used to treat endocrinological disorders, and Renna expects the company to gain regulatory approval “in a month or two” on a third, unnamed medication designed to treat patients with complications from achondroplasia.
Renna expects Ascendis to sustain a double-digit growth rate for earnings per share and the company to earn close to $50 a share annually by 2030.
When asked about other companies that had been successful in developing their own medications, gaining approval and bringing them to market while remaining independent, Renna named Insmed Inc. (INSM) and Alnylam Pharmaceuticals Inc. (ALNY) as examples. Both have developed medications to treat rare diseases and both are held by MEDI.
Another area of focus for MEDI in the current market has been medical technology and devices, with Renna naming Insulet Corp. (PODD) and Masimo Corp. (MASI), along with “an adjacent space – diagnostics,” in which he favors Natera Inc. (NTRA) and GeneDx Holdings Corp. (WGS).
When asked about healthcare-services companies, Renna said, “We do not find as compelling ideas on the services side,” although MEDI holds shares of UnitedHealth Group Inc. (UNH). That stock has fallen 33.5% this year, with dividends reinvested.
“For inefficiency and alpha potential we see more potential for med tech, biopharma and life-science tools,” he said.
Fund performance and that of competitors
The Harbor Health Care ETF was launched in November 2022. The fund’s performance benchmark is the Russell 3000 Growth Health Care Index. The fund has annual expenses of 0.8% of average assets under management. That would make for $80 in annual fees for a $10,000 investment.
LSEG lists 54 other ETFs as peers to MEDI. So here are one-year total returns and average annual returns through Nov. 30 for MEDI followed by the five peer ETFs with the best three-year average returns. All returns reflect reinvested dividends and are net of expenses. Below the peers are returns for the State Street Health Care Select Sector SPDR ETF, which is passively managed to track the healthcare sector of the S&P 500. At the bottom of the table are returns for MEDI’s performance benchmark, the Russell 3000 Growth Health Care Index.
ETF or index 1 year 3-year avg. 5-year avg. 10-year avg. Expense ratio
Harbor Health Care ETF 22.7% 17.3% - - 0.80%
ALPS Medical Breakthroughs ETF 32.9% 18.2% 1.1% 5.3% 0.50%
Virtus LifeSci Biotech Products ETF 22.2% 16.9% 9.2% 9.9% 0.79%
Virtus LifeSci Biotech Clinical Trials ETF 38.9% 14.6% -4.1% 2.1% 0.79%
State Street SPDR S&P Biotech ETF 23.7% 13.8% -1.5% 5.6% 0.35%
iShares U.S. Pharmaceuticals ETF 25.4% 12.8% 10.2% 6.3% 0.38%
State Street Health Care Select Sector SPDR ETF 8.9% 6.0% 9.2% 10.1% 0.08%
Russell 3000 Growth Health Care Index 17.5% 13.1% 8.7% 10.4% -
Sources: LSEG, Harbor Capital Advisors
For average three-year return, MEDI has been the second-best performer on the list, following the ALPS Medical Breakthrough ETF SBIO.
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-Philip van Doorn
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