How to invest in health care.
Whether it’s cash-rich pharmaceutical stocks, quick-to-pop biotech stocks or high-growth medical tech stocks, you want health care in your portfolio. But what company’s products and services are better than the next? Health care exchange-traded funds allow investors to get exposure to the sector as a whole, or a specific industry or two, without having to worry about whether they’ve guessed right on a single company. Here are 11 health care ETFs that cover just about every angle in the sector.
Health Care Select Sector SPDR Fund (ticker: XLV)
For many investors, the XLV is all the health care coverage they need. This well-rounded fund provides exposure to all corners of the sector, with a heavier bent toward pharmaceuticals and biotechnology — top three holdings Johnson & Johnson (JNJ), Pfizer (PFE) and Merck & Co. (MRK) make up a quarter of the fund — but also tackling health insurance, health care equipment and supplies. XLV consistently beats the Standard & Poor’s 500 index, and should continue to do so.
Expenses: 0.14 percent, or $14 annually for every $10,000 invested)
Guggenheim S&P 500 Equal Weight Health Care ETF (RYH)
One criticism of the XLV is that it’s too beholden to pharma and biotech, and too top-heavy (especially in JNJ). The RYH solves that by providing equal-weight exposure, in which all 57 stocks are set at equal weights at every rebalancing, ensuring that no single stock has an outsize effect on the ETF. This also results in larger weights for providers and services (29 percent) and equipment and supplies (26 percent). Current top holdings are St. Jude Medical (STJ) and Boston Scientific Corp. (BSX).
Expenses: 0.4 percent
SPDR S&P Biotech ETF (XBI)
XBI also uses an equal-weight methodology to harness the explosive power of biotechnology. Unlike other funds that invest heavily large biotechs, XBI is equally weighted among its 90 holdings, meaning that big pops on positive trials and Food and Drug Administration approvals in smaller biotech companies will have greater impact than they would otherwise. Top holding Acadia Pharmaceuticals (ACAD) has doubled in the past few months, and No. 2 holding Anacor Pharmaceuticals (ANAC) was just bought out by Pfizer at a 55 percent premium, helping lift XBI.
Expenses: 0.35 percent
VanEck Vectors Pharmaceutical ETF (PPH)
Pharmaceutical companies aren’t exactly the growth engine of the health care space, but they’re loaded with cash that they can use to make growth-minded acquisitions, or return to investors in the form of buyouts and dividends. PPH has just 26 holdings but offers a lot of balance thanks to a modified market cap weighting system. Eleven stocks are weighted between 5 and 6 percent, including Pfizer, AbbVie (ABBV) and Novartis (NVS). PPH’s yield of 2.1 percent is fairly high for the health care space.
Expenses: 0.36 percent
iShares U.S. Health Care Providers ETF (IHF)
The IHF is another industry-focused fund, though “providers” doesn’t just refer to insurers, but also things like hospital and health care facility managers and even a little health care tech. Still, insurance is IHF’s greatest industry focus at 44 percent of the fund, and includes UnitedHealth Group (UNH) at a 13 percent weight and Aetna (AET) at 6 percent. Services (27.5 percent) and facilities (22.5 percent) also get serious consideration.
Expenses: 0.43 percent
SPDR S&P Health Care Equipment ETF (XHE)
Game-changing medical treatments don’t just include pills, inhalers and creams — they also include things like heart valves, catheters, pacemakers and lasers. Enter the XHE, which uses an equal-weight methodology among its 64 health care equipment stocks. Top holdings at the moment include St. Jude Medical, Masimo Corp. (MASI) and Boston Scientific. As a note, this is a small, niche fund at just $45 million in assets and only a few thousand units traded daily. Still, it has provided double-digit annual returns since 2011.
Expenses: 0.35 percent
ALPS Medical Breakthroughs ETF (SBIO)
The SBIO hunts down “breakthrough” investments by seeking out mid- and small-capitalization pharma and biotech stocks that have at least one drug in either Phase II or Phase III FDA clinical trials. It does make a nod at sustainability by only holding companies with enough cash to survive 24 months at its burn rate, and its modified market cap methodology ensures that no single stock weighs more than 4.5 percent at rebalancing. Currently, Seattle Genetics (SGEN) and Anacor are among the top holdings.
Expenses: 0.5 percent
Genomic Revolution Multi-Sector ETF (ARKG)
ARKG is a play on companies that incorporate genomics into their businesses, so the companies in this ETF are as cutting-edge as it gets. But note that ARKG is not exclusively invested in health care. For instance, GMO giant Monsanto (MON) makes an appearance in the fund’s top 10 holdings. Still, biotech and other health-tech firms make up the lion’s share of the fund, with Illumina (ILMN) and Foundation Medicine (FMI) anchoring the fund at 10.6 and 7.3 percent, respectively.
Expenses: 0.95 percent
SPDR S&P International Health Care Sector ETF (IRY)
Health care is one of the few sectors in which international diversification doesn’t matter as much, just because of the very global nature of many pharma, biotech and device companies. Still, investors wanting exposure to the world’s best health care stocks can try IRY, a pharma-heavy (72 percent) ETF that features Novartis, Roche Holding and Novo Nordisk (NVO) as its top holdings. The fund pulls from more than 20 countries, though companies from Switzerland, Japan and U.K. represent more than half the fund.
Expenses: 0.4 percent
Direxion Daily S&P Biotech Bull and Bear 3x Shares (LABU, LABD)
Biotech is one of the most volatile industries on the stock market. LABU and LABD are a pair of leveraged ETFs that seek to provide 300 percent and -300 percent, respectively, of the daily returns of the S&P Biotechnology Select Industry index — the index that powers the XBI. These funds can produce quick gains and rapid losses — LABU popped 18 percent higher in the last five days of May, while LABD dropped 16 percent in the same period. These products should only be used by experienced traders.
Expenses: 0.95 percent
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11 Health Care ETFs for a Heart-Healthy Portfolio originally appeared on usnews.com
