Political risk has been rising for the health-care industry of late, but so is love for the group among hedge funds.

In a quarter when calls for drug pricing and " Medicare-for-All" grew louder, hedge funds raised their holdings in stocks from drugmakers to health insurers. At the end of March, their exposure increased to the highest since 2010, making the group the most crowded among 11 industries, regulatory filings compiled by RBC Capital Markets showed.

Though the worst industry in the S&P 500 this year, health-care has its devotees. The stocks are cheaper than the market, their revenues appear more resilient amid an economic slowdown or a trade war, and dealmaking is reviving. But the bets haven’t worked and the industry’s growing popularity leaves RBC strategist Lori Calvasina skeptical.

"Crowding problems in this sector clearly worsened during the first quarter," Calvasina wrote in a note clients earlier this week. “This (and political risk) keeps us wary of returning to an overweight in the sector (which we downgraded in March) despite attractive valuations.”

Health care has trailed all other major industries in the S&P 500, rising 3% this year, compared with a 14% gain for the broad benchmark. Hedge funds are unbowed. At the worst point of the rout in April, they were aggressively buying the dip, data compiled by JPMorgan’s prime brokerage unit showed.

Glenview Capital Management LLC took advantage of market jitters around Democrats’ single-payer proposals to build up stakes. Investors were wrong to be fearful of the “Medicare-for-All,” which has little chance of ever happening, founder Larry Robbins told Bloomberg earlier this month.

Investors may also be turning to the sector in the wake of escalating geopolitical tensions and a pick-up in volatility in broader markets. As a domestic industry, health care has been a haven for trade-weary investors.

But prepare for more turbulence in coming months as political pressure is likely to resurface, sector analysts warned. For one, the Democratic presidential primary debates are set to start in June. A ruling from an appeals court on the future of Obamacare is also pending.

“Price action continues to take its cue from the non-micro news du jour," Goldman analyst Asad Haider wrote. For managed care in particular, the Democratic debates remain a key focus, "as the group starts to claw back toward territory where we sense investor concern could only grow again," he said.

This article provided by Bloomberg News.

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