Best and Worst Q1'17 Health Care Etfs and Mutual Funds
Healthcare ETFs give investors exposure to a defensive corner of the market – one that is likely to benefit from consistent demand and rising prices over the long term.
According to the Centers for Medicare and Medicaid Services, national healthcare expenditures accounted for more than 17% of U.S. gross domestic product (GDP) in 2019. Looking forward, these expenditures are projected to grow at an average annual rate of 5.4% through 2028 to reach $6.2 trillion. By then, healthcare expenses are anticipated to account for roughly 20% of the entire economic output.
As citizens and consumers, there are plenty of reasons for outrage over the ever-increasing costs of American healthcare. Case in point: The Commonwealth Fund's recent ranking of developed economies found the U.S. has the worst healthcare among leading developed nations despite spending significantly more on medical care.
But as an investor, it's worth noting the opportunities here. After all, our for-profit system continues to provide tremendous revenue for drugmakers, hospital operators, insurers and others. And instead of putting all your eggs in one basket, healthcare ETFs allow investors to diversify across a group of stocks or industries.
That said, here are 11 top healthcare ETFs to buy now. This is a wide selection of exchange-traded funds that meet several different investment objectives.
Take a look.
Data is as of Aug. 31. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
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Health Care Select Sector SPDR Fund
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- Assets under management: $33.7 billion
- Dividend yield: 1.3%
- Expenses: 0.12%, or $12 annually for every $10,000 invested
The biggest healthcare ETF by assets at present is the State Street Global Advisors' Health Care Select Sector SPDR Fund (XLV, $135.21). XLV is the simplest and most liquid way to play the biggest healthcare stocks on Wall Street.
The 60 or so holdings in this fund are a simple listing of the healthcare stocks that are present in the broader S&P 500 Index. These companies are then weighted by size, so familiar names like Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Pfizer (PFE) top the list of components.
The focus on big stocks means that the portfolio is a bit top-heavy, however. To the point: About 22% of all assets are behind those three stocks alone.
Of course, many investors use sector funds to concentrate their holdings into one area of the market. So the fact that XLV isn't hyper-diversified might not be a dealbreaker for investors simply looking to play the most prominent healthcare stocks via an ETF.
Learn more about XLV at the State Street Global Advisors provider site.
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Vanguard Healthcare ETF
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- Assets under management: $16.9 billion
- Dividend yield: 1.1%
- Expenses: 0.10%
Also popular with about $17 billion in total assets under management is the Vanguard Healthcare ETF (VHT, $262.49). This fund is similar to the leading XLV offering in many ways, as its top three holdings are the same short list of mega-cap healthcare stocks. However, it is much more diversified, with a deep bench of about 500 total stocks making up its lineup.
To be clear, it's still a bit top-heavy, as the 10 leading positions collectively account for roughly 40% of the entire portfolio at present, despite there being hundreds of other individual positions. However, those small stakes in lesser-known medical device and biotechnology stocks can still provide big returns if and when they take off.
On the other hand, if those smaller stocks underperform, then the healthcare ETF can be held back. That's actually what has happened lately, too, as this Vanguard fund is "only" up about 17% in 2021 so far – less than the roughly 20% gains for XLV and the broader S&P 500 in the same period. Still, that's not too shabby of a return.
Learn more about VHT at the Vanguard provider site.
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iShares Biotechnology ETF
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- Assets under management: $11.3 billion
- Dividend yield: 0.2%
- Expenses: 0.45%
The iShares Biotechnology ETF (IBB, $172.28) was recently highlighted as one of the best biotech funds to play in the higher-volatility space. IBB is the leader among funds in this dynamic subset of healthcare stocks.
The fund has about $11 billion in assets under management. And it's a one-stop shop for those who want to focus on companies that are aggressively researching the next generation of cures for diseases like cancer and Alzheimer's that, as of yet, don't have reliable treatments.
With about 270 positions, IBB gives investors exposure to development-stage biotechs that are unprofitable as of yet and are banking on future Food and Drug Administration (FDA) approvals to prove their value to investors. That makes this fund riskier than the typical large-cap healthcare ETF that is relying on entrenched insurance firms and Big Pharma mainstays.
That said, IBB is popular in part because its top holdings at present include Moderna (MRNA), Amgen (AMGN) and Gilead Sciences (GILD) – three very mature and very profitable biotech companies that collectively add up to more than $370 billion in market value. This provides a good foundation for the smaller and more aggressive picks that supplement the portfolio of this healthcare ETF.
Learn more about IBB at the iShares provider site.
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ARK Genomic Revolution ETF
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- Assets under management: $8.5 billion
- Dividend yield: 0.00%
- Expenses: 0.75%
Of course, some investors aren't interested in reducing their risk profile by reliance on some of the larger biotech stocks out there. By contrast, they simply want an aggressive and tactical play on small startups researching potentially groundbreaking treatments.
That's what the ARK Genomic Revolution ETF (ARKG, $85.68) provides, with about 50 holdings that are all involved in next-gen healthcare technology including bioinformatics, molecular diagnostics and stem cell research.
Right now, the lineup is led by remote medicine and diagnostics innovator Teladoc Health (TDOC), DNA research firm Pacific Biosciences of California (PACB) and cancer drug developer Fate Therapeutics (FATE).
These are all names that veteran biotech traders may know well, but the typical investor may not be familiar with. That proves the power of ARKG to identify off-the-beaten-path healthcare names instead of the same old lineup of blue-chip stocks you may already have exposure to in your portfolio.
ARKG has struggled a bit lately, and is currently in the red this year as some of these more aggressive picks in its portfolio have declined. Longer term, it remains up an impressive 170% in the last two years and 40% in the past 12 months. Investors who can stomach the short-term volatility may still want to give this high-octane healthcare ETF a look.
Learn more about ARKG at the Ark Invest provider site.
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iShares U.S. Medical Devices ETF
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- Assets under management: $8.6 billion
- Dividend yield: 0.2%
- Expenses: 0.41%
Another way to slice up the universe of healthcare stocks is to avoid drugmakers of any size and instead to focus on medical devices. This can be done via the iShares U.S. Medical Devices ETF (IHI, $65.58).
While high-profile branded cures can generate big bucks under patent protection, some Big Pharma companies have been under pressure in recent years after those drugs became available through cheaper generic prescriptions.
Throw in continued criticism from many in Washington about what is sometimes seen as price-gouging on life-saving medications and investors may want to consider alternatives to banking on massive margins from big pharmaceutical firms.
Medical devices are an interesting middle ground. Here, manufacturers of high-tech surgical gear or heart valves can still command big profit margins even as they produce the rather mundane artifacts of the healthcare system that can include everything from IV tubes to exam gloves.
IHI's top positions among its 60-something holdings at present include insertable heart monitor maker Abbott Laboratories (ABT), specialty diagnostics firm Thermo Fisher Scientific (TMO) and cellular analysis specialist Danaher (DHR). The healthcare fund is admittedly pretty focused on this trio, with 36% of all assets in the three positions, but they are entrenched and stable ways to play the sector without worrying about drug patent expirations.
Learn more about IHI at the iShares provider site.
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SPDR S&P Health Care Equipment ETF
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- Assets under management: $828.0 million
- Dividend yield: 0.00%
- Expenses: 0.35%
The SPDR S&P Health Care Equipment ETF (XHE, $130.96) offers a slightly more balanced approach to the healthcare sector without a focus on Big Pharma.
Though smaller at just $828 million in total assets, its "equal weight" approach to medical devices and related equipment ensures that the 85-odd holdings are all pretty much on equal footing.
Case in point: While you'll find Danaher as a top holding yet again, it's only at 1.6% of total assets right now – in line with most of the other companies on the list, including $2.8 billion veterinary medicine provider Heska (HSKA), which certainly doesn't pop up on the typical list of large-cap healthcare stocks.
Because the cash is spread around in many places, XHE has slightly lagged the broader S&P 500 Index for the year to date (15% vs. 20%). However, it's undeniable that during a bout of volatility for a select group of stocks, you may want the diversification of this healthcare ETF on your side.
Learn more about XHE at the iShares provider site.
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iShares Global Healthcare ETF
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- Assets under management: $3.5 billion
- Dividend yield: 1.1%
- Expenses: 0.43%
Thus far, the healthcare ETFs on this list have had a decidedly domestic focus. But the iShares Global Healthcare ETF (IXJ, $88.36) is a popular alternative for those that want to play international healthcare trends and not just the U.S. marketplace.
This is an important differentiator because many stocks that investors are familiar with as healthcare consumers may not actually be headquartered in the U.S. As such, they may be excluded from the typical domestic index fund simply because these multinational companies are headquartered overseas.
To be clear, this is not a fully international fund and top U.S. companies including Johnson & Johnson still lead the list. However, Swiss drugmaker Roche Holding (RHHBY) and French pharmaceutical firm Sanofi (SNY) also have prominent spots in this portfolio.
Big Pharma stocks make up a large share of the portfolio, and collectively the pharma, biotech and life sciences industries account for about 60% of total assets. However, it's undeniable that this added level of global diversification gives a more fulsome representation of the sector than just a U.S.-only healthcare ETF.
Learn more about IXJ at the iShares provider site.
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First Trust Health Care AlphaDEX Fund
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- Assets under management: $1.6 billion
- Dividend yield: 0.00%
- Expenses: 0.61%
The First Trust Health Care AlphaDEX Fund (FXH, $125.52) offers a unique approach to investing in healthcare. FXJ is an actively managed healthcare ETF that looks at the universe of large and mid-sized stocks in the sector and then focuses on the ones its managers think have the most potential.
The exact methodology behind FXH is proprietary, but it involves ranking healthcare stocks based on specific factors, including short-term and long-term price momentum, growth metrics like revenue expansion and value metrics including book value. Then it takes the stocks that meet its highest criteria, which right now adds up to about 85 total holdings.
The result is an eclectic lineup that currently includes high-flying biotech Moderna alongside lesser-known diagnostics firm Bio-Rad Laboratories (BIO) and surgical products maker Hologic (HOLX). This focus on the crème de la crème has allowed FXH to tack on 17% or so in 2021 to outperform several of the other healthcare ETFs on this list.
However, keep in mind that while the other healthcare ETFs here tend to be a general play on a specific trend, this fund is very much reliant on the screening methodology. That could be good or could be bad, depending on what stocks get spit out each quarter.
Learn more about FXH at the First Trust provider site.
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Invesco Dynamic Pharmaceuticals ETF
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- Assets under management: $454.9 million
- Dividend yield: 0.7%
- Expenses: 0.56%
The Invesco Dynamic Pharmaceuticals ETF (PJP, $82.17) is another actively managed healthcare ETF. PJP is based on its own proprietary screening methodology, which includes price momentum, earnings momentum and value metrics.
The fund comprises just 23 U.S. pharmaceutical companies. However, the definition of "pharma" is pretty broad and includes any publicly traded stock engaged in the research, manufacture or sale of drugs of any type.
That gives a pretty good mix of entrenched drugmakers like AbbVie (ABBV) and Gilead Sciences, which currently top the list of holdings with weightings of about 6% apiece. Farther down the list, you'll also find small drug companies like the $1.5 billion Supernus Pharmaceuticals (SUPN) to round out the portfolio.
The healthcare fund is rebalanced and reconstituted quarterly to ensure investors have a foothold in the pharmaceutical stocks that the numbers seem to be behind.
On the charts, PJP has managed to climb about 14% year-to-date.
Learn more about PJP at the Invesco provider site.
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Global X Telemedicine & Digital Health ETF
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- Assets under management: $623.6 million
- Dividend yield: 0.03%
- Expenses: 0.68%
The Global X Telemedicine & Digital Health ETF (EDOC, $18.50) is one of the more tactical healthcare ETFs on this list. It does what the name implies: invest in companies advancing the fields of digital healthcare. This encompasses firms involved in everything from telemedicine, healthcare "big data" and analytics, connected devices, patient record digitization and other similar areas.
The fund's top holdings include genetic diagnostics company Illumina (ILMN), chromatography and spectrometry specialist Agilent Technologies (A) and high-tech diabetes monitoring firm Dexcom (DXCM) to name a few. Particularly in the wake of the pandemic, it should be clear how important it is to quickly assess patient needs and deliver portable digital records to where they're needed.
EDOC has cooled off in a big way since February now that the major upswing caused by the public health concerns of 2020 are in the rearview. However, long-term investors might be interested in this healthcare ETF because of the opportunities these kinds of companies provide beyond COVID-19.
Learn more about EDOC at the Global X provider site.
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Invesco S&P SmallCap Health Care ETF
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- Assets under management: $526.1 million
- Dividend yield: 0.00%
- Expenses: 0.29%
Speaking of long-term potential, the Invesco S&P SmallCap Health Care ETF (PSCH, $191.11) is another option for investors who are less concerned with the day-to-day volatility of healthcare stocks and instead want a foothold in companies that may be higher risk, but could also deliver higher rewards.
We're talking about stocks like pharmacy automation firm Omnicell (OMCL), nurse and doctor staffing software operator AMN Healthcare Services (AMN) and cancer testing services provider NeoGenomics (NEO) to name a few.
These stocks are hardly the high-profile investments that are often the mainstays of a typical portfolio. And since they collectively only add up to $18.4 billion in market value, they are also a great example of companies with a lot of headroom when they begin firing on all cylinders.
And interestingly enough, though a few of the healthcare ETFs on this list have been under pressure in the last several months, PSCH has had a great run. The shares are up more than 43% in the last 12 months to handily outperform the S&P 500 – as well as most other healthcare sector funds. That's proof that going small doesn't mean you can't tap into gains, even when blue-chip healthcare stocks hit a rough patch.
Learn more about PSCH at the Invesco provider site.
Best and Worst Q1'17 Health Care Etfs and Mutual Funds
Source: https://www.kiplinger.com/investing/etfs/603392/top-healthcare-etfs-to-buy-now