UBS breaks down what Ruth Bader Ginsburg's death means for the healthcare sector's future

• A team of UBS investment strategists said that the passing of Ruth Bader Ginsberg will increase uncertainty within the healthcare sector, though they still list it as "moderately preferred" in their broader sector allocation.
• Their analysis rests on the outcome of a Supreme Court decision involving the constitutionality of the individual mandate component of the ACA.
• Depending on the future of the Supreme Court, this mandate could continue or be completely struck down.
• This uncertainty will likely weigh on valuations for managed care companies, said UBS.

• Visit Business Insider's homepage for more stories.

A team of UBS investment strategists said that the passing of Supreme Court Justice Ruth Bader Ginsburg will increase uncertainty for healthcare stocks, but they still list the sector as "moderately preferred."

Much of their analysis rests on the uncertainty surrounding the future of one specific healthcare policy: the individual mandate component of the Affordable Care Act.

The Supreme Court is scheduled to hear oral arguments in a case that involves the constitutionality of the mandate on November 10. UBS said that the various outcomes for the decision increase uncertainty within the healthcare sector. And, while it's too early to predict what the new Supreme Court will look like, "the heightened uncertainty will likely weigh on valuations for managed care companies," they said.

"Still, with the sector trading at its lowest valuation relative to the market in at least 25 years, we think a good deal of uncertainty is already priced into the sector," UBS added. "This policy uncertainty should begin to lift within the next year, and we therefore continue to rate the sector moderately preferred within our US sector allocation."

Read more: Tony Greer made 5x his money with an early investment in Apple. The macro investor and ex-Goldman Sachs trader provides an inside look into his trading tactics, and shares his top 3 ideas right now.

If a new justice is seated before the election, the mandate will likely be struck down, "potentially dismantling the ACA," according to UBS. If Trump nominates a justice but they are not seated before the election, the court will be deadlocked at a 4-4 decision, and the appeals court will likely declare the mandate unconstitutional, or the court will decide the case at a later date. If Democratic presidential nominee Joe Biden wins the election and fills the court, the mandate is likely to survive, UBS said.

The team also mentioned that potential shifts in health policy under a new Supreme Court may lead to volatility within the broader healthcare sector.

The Health Care Select Sector SPDR Fund (XLV) is down more than 3% Monday, and has increased roughly 11% over the last 12 months. The broader S&P 500 is up roughly 9% over the same time period.