Health care stocks continue to soar.
Health care is booming, and it’s going to stay that way. The Centers for Medicare & Medicaid Services earlier this year predicted 5.6 percent annual national health expenditure growth through 2025. And while most countries don’t spend what we do on health care, that market still is expected to balloon to more than $18 trillion worldwide by 2040. Aging populations and continued advancements in medical sciences are driving this explosion, and driving gains across health care stocks. These exchange-traded funds provide access to this red-hot sector.
Vanguard Health Care ETF (ticker: VHT)
If you just want to capture the health care sector in one broad stroke, consider Vanguard’s VHT. This cheap, diverse basket of 364 stocks is fairly blue-chip in nature, with a median market capitalization of $84 billion. This ETF is heavily concentrated in big pharmaceutical companies (31.3 percent), followed by biotech (23 percent) and health care equipment (18.2 percent). Note: VHT is a little top-heavy, with Johnson & Johnson (JNJ) weighted at 10 percent, and Pfizer (PFE), Merck & Co. (MRK) and UnitedHealth Group (UNH) at 5 percent or more.
Expenses: 0.1 percent, or $10 annually on every $10,000 invested
VanEck Vector Pharmaceutical ETF (PPH)
The pharmaceutical industry is jam-packed with can’t-miss blue chips, making VanEck’s PPH one of the safest places to hide out. It includes American large-caps such as JNJ, MRK and PFE, naturally. But it also holds global giants such as Switzerland’s Novartis (NVS), which makes Ritalin and Lamisil, as well as Danish outfit Novo Nordisk A/S (NVO), which is a leading provider of diabetes treatments. Many of these big pharma companies offer decent dividends, resulting in a 2 percent yield that’s better than the 1.3 percent on offer in VHT.
Expenses: 0.35 percent (includes 6-basis-point fee waiver)
ALPS Medical Breakthroughs ETF (SBIO)
While VHT and PPH are mostly large-cap plays, ALPS’ SBIO is designed to capture potential breakouts in the sector’s smaller players. SBIO only invests in U.S.-listed biotech or pharmaceutical companies between $200 million and $5 billion in market cap, and tries to ensure quality via inclusion criteria such as having enough cash for 24 months at their current burn rate. The companies also must have one or more drugs in Phase II or III FDA clinical trials, and the reward is that FDA approvals will send their stocks sky high. But there’s no mandate that these companies actually have an approved product, so you’re also exposed to “pre-revenue” stocks that could collapse overnight.
Expenses: 0.5 percent
VanEck Vectors Generic Drugs ETF (GNRX)
VanEck’s GNRX sits on the opposite end of the medical breakthrough table. Generic drug companies essentially wait until blockbuster name-brand drugs’ patents expire, then sell off-brand versions of those drugs for a fraction of the price. It’s a massive market, with generics comprising 88 percent of all prescriptions written in the U.S. GNRX isn’t a pure play on generic drugs, with companies like EpiPen maker Mylan NV (MYL) boasting both generic and name-brand products. Still, this ETF provides access to most of the big names in the space, including the likes of Teva Pharmaceutical Industries (TEVA) and Perrigo Co. (PRGO).
Expenses: 0.55 percent (includes 515-basis-point fee waiver)
SPDR S&P Biotech ETF (XBI)
After a big spill in 2015, biotech is back as a high-growth industry. The iShares Nasdaq Biotechnology ETF (IBB) — the most popular biotech ETF on the market — provides outsize exposure to biotech giants like Gilead Sciences (GILD) and Biogen (BIIB), with 40 percent of its weight concentrated in just the top five holdings. XBI, however, is a play on little-guy upside, with an equal-weight methodology that allows big runs in smaller biotech stocks — like $3 billion Sarepta Therapeutics (SRPT), weighted at 2.5 percent in XBI versus just 0.4 percent in IBB — to contribute more to the fund’s performance. It’s also cheaper by 12 basis points.
Expenses: 0.35 percent
Virtus LifeSci Biotech Products ETF (BBP); Virtus LifeSci Biotech Clinical Trials ETF (BBC)
If you really want to split biotech hairs, Virtus Investment Partners allows you to invest in two categories of biotech stocks. BBP holds roughly 35 companies that have already received FDA approval to sell and market at least one drug, and in fact boasts SRPT as its top holding. BBC only holds pre-approval biotechs with at least one lead drug in some level of clinical trial. Top holdings include Dynavax Technologies Corp. (DVAX), whose top candidates include a hepatitis B vaccine in Phase III testing, and an asthma treatment in Phase II testing.
Expenses: 0.79 percent
iShares U.S. Medical Devices ETF (IHI)
While most of the funds here have focused on companies that produce various chemical or biological treatments, iShares’ IHI focuses on the still-lucrative medical device industry. Medical devices span a wide range of complexity and uses, from the basic thermometer to insulin pumps and gastric bands, and are an increasing part of the health care landscape. IHI includes the likes of Medtronic plc (MDT), which boasts dozens of products for surgical, cardiovascular and other implements, as well as Thermo Fisher Scientific (TMO), which develops everything from lab supplies to gene sequencing kits.
Expenses: 0.44 percent
iShares U.S. Healthcare Providers ETF (IHF)
The IHF is something of an “other” basket of health care stocks that focuses primarily on three industries: managed health care (insurers, 51 percent), health care services (23.9 percent) and health care facilities (17.7 percent). That heft in insurance is apparent in top holdings UnitedHealth (14.6 percent), Aetna (AET, 7.1 percent) and Anthem (ANTM, 6.8 percent). But IHF also provides exposure to the likes of pharmacy benefit manager Express Scripts Holding Co. (ESRX), lab services company Laboratory Corporation of America (LH) and HealthSouth Corp. (HLS) — a rehabilitation hospital operator and home-based patient care provider that will be rebranded as Encompass Health in 2018.
Expenses: 0.44 percent
Global X Longevity Thematic ETF (LNGR)
Last but not least is another wide-basket health care ETF, but one that’s specifically focused on the aging global population — and the companies that will profit most from the trend. At the moment, that means a big lean toward biotech (35.7 percent) and health care equipment (33.1 percent), as well as exposure in health care real estate investment trusts, services, pharma and a couple other industries. This fund also boasts a little geographic diversification, with roughly a third of the fund invested in international stocks. The modified cap-weighting methodology results in a fairly balanced portfolio, too, led by Vertex Pharmaceuticals (VRTX) and Novo Nordisk at sub-4 percent weights.
Expenses: 0.5 percent (includes 18-basis-point fee waiver)
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10 ETFs That Will Keep Your Portfolio in Good Health originally appeared on usnews.com
