Two funds investing in defensive stocks are the only exchange-traded funds in the world that had a positive return every year over the past decade, CNBC Pro research has found. The Amundi ETF MSCI Europe Healthcare UCITS ETF , traded on the London Stock Exchange, and the Canadian consumer staples iShares S & P/TSX Capped Consumer Staples Index ETF , made money for investors every year between Jan. 1, 2014, and Dec. 31, 2023. The two funds stood out among 8,300 equity ETFs worldwide screened by CNBC Pro using FactSet data. XST-CA 5Y line While CNBC Pro has reported on the iShares Capped Consumer Staples Index ETF’s winning streak previously , the Amundi health-care fund logged its 10th consecutive year of positive return for the first time in 2023. Over that period, the ETF more than doubled investors’ money, with a cumulative total price gain of 118%. The ETF also beat the pan-European Stoxx 600 benchmark index by more than 70 percentage points on a price return basis. What’s behind the ETF’s steady returns? The stable returns of the health-care ETF can be attributed to pharmaceutical stocks, which make up around 80% of the MSCI Europe Healthcare Index that the fund tracks, according to Joakim Tabet, economist and strategist at Kepler Cheuvreux . Tabet explained that European pharmaceuticals are a defensive growth sector that fits the so-called “quality investing” theme. This suggests that demand for pharmaceutical products are less sensitive to economic cycles than other sectors. In addition, big pharmaceutical companies offer earnings visibility owing to patent protection and drug regulation around the world. The ETF, valued in British pounds, also made significant gains on three occasions when the MSCI Europe Health Care Index had negative returns due to currency fluctuation, according to Vincent Denoiseux, head of investment strategy at Amundi ETF. While the MSCI Healthcare index, valued in euros, dipped slightly into negative territory in 2016, 2020 and 2022, the Amundi ETF’s total returns have remained positive because of the weakness in the pound sterling. Outlook Novo Nordisk, which makes up 20% of the index, has been a key contributor to the share price performance of the ETF over the past 12 months. Novo’s valuation recently grew thanks to its new anti-obesity blockbuster drug Wegovy. “Over the last couple of years, the boom in sentiment around weight loss drugs like Wegovy and optimistic growth forecasts have dramatically increased,” said David Evans, senior pharma analyst at Kepler Cheuvreux. CH5-GB 5Y line Analysts previously calculated that the whole obesity treatment market is worth $10 billion annually. However, a revaluation of the sector spurred by the soaring demand for Novo Nordisk’s new drug has led many to estimate that the market for anti-obesity drugs could now grow to $100 billion a year. However, Evans cautioned that “expectations for weight loss drugs may have gotten ahead of themselves.” Risks The high expectations may have boosted Novo Nordisk’s valuation, but outside of the Danish drugmaker, Tabet believes the rest of the pharma sector still looks fairly valued with solid fundamentals. “Outside of Novo, the sector looks rather attractively valued, I would say,” Tabet told CNBC Pro. Kepler Cheuvreux has a neutral view of the sector because of its low volatility and defensive features at a time when the U.S. economy is expected to slow meaningfully, owing to high interest rates. However, Tabet also pointed out that the health-care sector, especially European pharma, tends to underperform in election years. His observations were based on the last three U.S. election cycles in 2020, 2016 and 2012. While political rhetoric could heat up again and pressure pharma stocks, Evans is not expecting health care and drug pricing to be a major election issue this year. “I think the pharma industry’s reputation has improved in the eyes of the U.S. public since Covid,” Evans told CNBC. “Before COVID, the pharma industry was ranked extremely low among industries that the U.S. public disliked, and so it was really popular to attack pharma. Whereas now they’ve earned some credit. I think logically, there’s less political gain from attacking pharma companies now compared to previously.”
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