By Paul R. La Monica

Nervous about all the volatility in semiconductor stocks and the broader tech sector? Healthcare stocks might offer some safety.

The sector boasts steady dividends, solid fundamentals, and the potential for a boost from more merger activity, especially among smaller biotechs. And there are several exchange-traded funds focusing on the sector to play these trends.

Jeffrey deGraaf of Renaissance Macro Research noted in a report Monday that the healthcare sector was enjoying a "bullish breakout" in the midst of the recent choppiness for chip stocks. He pointed out that the State Street Health Care Select Sector SPDR ETF recently hit a 52-week high, a sign of the newfound momentum for the sector. But the fund is only up about 5% this year, compared with a 10% gain for the S&P 500. So it might have more room to run.

This fund is the broadest bet on healthcare as well. In addition to large stakes in major drug and biotech companies such as Eli Lilly, Johnson & Johnson, Merck, and Amgen, the ETF also has sizable weightings in health insurers and medical equipment companies as well. UnitedHealth Group, Thermo Fisher Scientific, and Intuitive Surgical are top 10 holdings.

The ETF has a dividend yield of 1.6% which, combined with estimated annual earnings growth of 19% next year, offers investors the potential for solid income and price appreciation. The fund trades for just under 17 times 2027 earnings forecasts, a multiple that's in line with its five-year historical average.

Others, though, say investors should focus more on the drugmakers. An aging population in the U.S. and many other Western nations should lead to even more demand for medications to help fight chronic conditions such as heart disease and cancer.

"Demographics are in healthcare's favor," said Josh Schachter, chief investment officer and senior portfolio manager at Easterly Snow.

Technical analysts at Oppenheimer also said in a report late last week that they were encouraged by the recent rally for the S&P Pharmaceuticals ETF, an equal-weighted fund exhibiting some recent momentum. The ETF has gained nearly 20% this year, double the S&P 500's return.

"This strength suggests that a decadelong trend of underperformance has likely reversed to the upside," the Oppenheimer analysts said.

Big Pharma companies are also on the hunt for new medications to bolster their pipelines. Many top drug firms, including AbbVie, Merck, Eli Lilly, Novartis, and GSK, have made acquisitions of smaller biotechs in the first half of 2026. That trend is likely to continue and could give a further boost to biotech stocks, too.

"An M&A cycle that continues to ramp up should...benefit the industry," said Michael Wilson, equity strategist for Morgan Stanley, in a report Monday. Wilson added that he thinks investor fears about inflation and higher interest rates are overblown and that biotechs would benefit if rates were to fall.

With that in mind, investors should consider a fund like the iShares Biotechnology ETF. The fund, which is passively managed and tracks the NYSE Biotechnology Index, is up more than 15% this year. With nearly 250 holdings, the ETF offers investors exposure to both some of the larger biotechs that are making deals — such as Gilead Sciences, Amgen, and Biogen — as well as many smaller and midsize companies that could wind up being takeover targets for pharmaceutical companies and the biggest biotechs.

So a healthy dose of healthcare stocks and funds could make sense for your portfolio, especially if you're concerned that the recent volatility for tech and the artificial-intelligence trade will last longer.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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