Healthcare was the best-performing sector of 2018, having gained nearly 4.7%. The dual tailwinds of encouraging industry fundamentals and the sector’s defensive tilt led to the rally in the sector. The wave of mergers and acquisitions also added to its strength.

Solid Trends

The sector is clearly benefiting from promising drug launches, faster drug approvals, accelerated pace of innovation, the growing importance of biosimilars, cost-cutting efforts, an aging population, ever-increasing healthcare spending, expansion into emerging markets, growing middle class, solid demand for new drugs and Trump’s tax reform. In particular, the new tax legislation has enticed companies to bring offshore cash back home at reduced tax rates, and the repatriated money is being used for share buybacks, dividends, acquisitions, and capital spending.

Defensive Nature

The sector’s non-cyclical nature is an added advantage amid the turmoil in the stock market due to global growth concerns and trade spat between the United States and China. Additionally, the emerging market turmoil, as well as slowing growth in Japan and Europe, led investors’ flight to defensive and stable sectors.

Mergers & Acquisitions

The healthcare sector has been heating up with merger frenzy that could change the landscape of healthcare business. The latest theme in this trend is health insurers trying to consolidate with pharmacy benefits managers to streamline and cut costs in the drug supply chain.

Solid Sector Zacks Rank

The sector boasts a solid rank, which places it in the top 13% of the 16 Zacks Sectors, in terms of ranking. About 92% of industries under healthcare have a Zacks Rank in the top 44%, suggesting a bullish outlook.

Given this, investors might want to tap into the space with the top-performing healthcare ETFs and stocks of 2018. For them, we have highlighted five ETFs and stocks that are poised to perform well in 2019:

iShares U.S. Medical Devices ETF (IHI - Free Report)  

The fund provides exposure to U.S. companies that manufacture and distribute medical devices by tracking the Dow Jones U.S. Select Medical Equipment Index.

Zacks Rank: #1 (Strong Buy)
AUM: $2.7 billion

Expense Ratio: 0.43%
2018 Return: 15.4%

Invesco S&P SmallCap Health Care ETF (PSCH - Free Report)

This fund targets the small-cap stocks in the healthcare sector by tracking the S&P SmallCap 600 Capped Health Care Index.

Zacks Rank: #2 (Buy)
AUM: $830.8 million
Expense Ratio: 0.29%
2018 Return: 9.1%

SPDR S&P Health Care Equipment ETF (XHE - Free Report)

This fund offers exposure to the health care equipment and health care supplies segment by tracking the S&P Health Care Equipment Select Industry Index.

Zacks Rank: #3 (Hold)
AUM: $494.3 million
Expense Ratio: 0.35%
2018 Return: 8.9%

Health Care Select Sector SPDR Fund (XLV - Free Report)

This is an ultra-popular ETF offering exposure to the broad healthcare sector by tracking the Health Care Select Sector Index.

Zacks Rank: #1
AUM: $18 billion
Expense Ratio: 0.13%
2018 Return: 6.3%

Vanguard Health Care ETF (VHT - Free Report)

This ETF targets the broad healthcare sector and follows the MSCI US IMI Health Care 25/50 Index.

Zacks Rank: #1
AUM: $8.3 billion
Expense Ratio: 0.10%
2018 Return: 5.6%

Tandem Diabetes Care Inc. (TNDM - Free Report)

This medical device company designs, develops, and commercializes products for people with insulin-dependent diabetes.

Zacks Rank: #3
VGM Score: C
Market Cap: $2.2 billion
2018 Return: 1394.9%

ProQR Therapeutics N.V. (PRQR - Free Report)

This biotech company is engaged in the discovery and development of RNA-based therapeutics for the treatment of severe genetic disorders, with an initial focus on cystic fibrosis.

Zacks Rank: #3
VGM Score: C
Market Cap: $610.9 million
2018 Return: 378.2%

CareDx Inc. (CDNA - Free Report)

This commercial stage company develops, markets, and delivers a diagnostic surveillance solution for heart transplant recipients.

Zacks Rank: #3
VGM Score: F
Market Cap: $978 million
2018 Return: 256.6%

HemaCare Corp. (HEMA  - Free Report)

This company provides human-derived primary blood cells and tissues for biomedical research and supporting cell therapy clinical trials and commercialization with apheresis collections in the United States.

Zacks Rank: #3
VGM Score: F
Market Cap: $124.7 million
2018 Return: 229.9%

Imprimis Pharmaceuticals Inc. (IMMY - Free Report)

This is a pharmaceutical company focused on its proprietary ophthalmology and urology drug formulations.

Zacks Rank: #3
VGM Score: C
Market Cap: $132.4 million
2018 Return: 228.9%