The health care sector’s appeal: growth and stability.
Investors can be certain of few things except that the investment closest to a sure thing is health care. According to recent data from the Centers for Medicare & Medicaid Services, health care spending is roughly $10,000 per American. That adds up to some $3.2 trillion annually — a nearly 18 percent share of the U.S. economy, and health care spending is growing between 5 and 10 percent annually. Adding to the appeal, this spending is recession-proof, because people will cut back on other discretionary expenses before sacrificing their health, making the sector a great investment for growth or long-term stability. To play this big potential, here are seven ETFs that invest in health care differently.
Vanguard Health Care ETF (ticker: VHT)
If you simply want to play a broad swath of health care in a cost-effective way, the Vanguard Health Care ETF is for you. With more than 350 holdings, VHT has a footprint in every subgroup in the health care industry. Just look at the top three holdings for an example of that diversification: consumer health giant Johnson & Johnson (JNJ), drug maker Pfizer (PFE) and insurer UnitedHealth Group (UNH). With expenses of 0.10 percentage points, the fund costs just $10 annually for every $10,000 invested. That’s a small price to pay for all that diversification.
Guggenheim S&P 500 Equal Weight Healthcare ETF (RYH)
A subtle twist on the vanilla Vanguard fund is the Guggenheim S&P 500 Equal Weight Healthcare ETF. Unlike the Vanguard fund or other broad index funds that are biased toward the largest stocks in their portfolio, RYH’s “equal weight” methodology demands that no single position is worth significantly more; RYH only holds 62 securities, which are rebalanced regularly to ensure all have an equal share. The result is a better way to play the sector at large, as you don’t rely on a handful of companies for outperformance. The strategy’s downside is you’ll depend more on smaller, riskier companies with an equal seat at the table, which could hurt in a sector-wide downturn.
Expenses: 0.40 percent
iShares Global Healthcare ETF (IXJ)
As the name implies, this fund isn’t constrained by geography. That allows big players like Switzerland’s Novartis AG (NVS) and Germany’s Bayer AG to join the list. While the fund invests heavily in the U.S., with about two-thirds of the holdings in American health care plays, the ability to go after the biggest and best companies in the world allows this ETF to avoid exposure to smaller, riskier plays. Whether you’re worried about uncertainty in U.S. health care policy or you’re intrigued by the growth potential in emerging markets, this is a tactical way to play health care globally instead of just the American slice of the pie.
Expenses: 0.48 percent
Global X Longevity Thematic ETF (LNGR)
To think more broadly about health care, look beyond geography and company size to the megatrends fueling the sector’s growth. After all, the demographic shift in America and Japan is a well-documented cause of increased health care spending. The Global X Longevity Thematic ETF offers an intriguing way to tap into this trend. The fund “seeks to invest in companies positioned to serve the world’s growing senior population” via investments like diabetes powerhouse Novo Nordisk (NVO) and Regeneron Pharmaceuticals (REGN), which has treatments for cancer and high cholesterol.
Expenses: 0.68 percent
SPDR S&P Biotech ETF (XBI)
One of the stock market’s most powerful profit centers in the last decade was biotech, where small, ambitious research firms invest heavily in a potential cure. If the treatment succeeds, the stock soars. But picking biotech stocks is fraught with risk. If a drug fails to be effective, an unprofitable biotech company can go under overnight and bankrupt unwary investors. Thankfully, the SPDR S&P Biotech ETF removes that guesswork by providing a basket of small, ambitious players that collectively are sure to create blockbuster drugs. As a result, this fund spreads risk evenly across the sector for a much more reliable long-term return.
Expenses: 0.35 percent
iShares US Medical Devices ETF (IHI)
The profit potential of next-generation drugs is clear, but don’t overlook the lucrative market for high-tech medical devices that are as important to modern health care as pills. Patented medical technologies are equally lucrative for corporations and their investors. These next-generation gadgets are behind the iShares U.S. Medical Devices ETF. Top holdings include Medtronic PLC (MDT), which specializes in cardiovascular technologies like stents, and Intuitive Surgical (ISRG), which makes equipment for robotic-assisted surgery. Technology has transformed every segment of the U.S. economy, and medicine is no different. IHI’s direct play on these 21st century devices is a great way to inject growth and stability into a portfolio.
Expenses: 0.44 percent
iShares US Healthcare Providers ETF (IHF)
Although big winners in the Affordable Care Act’s rollout were insurance companies and direct service providers who got access to more “customers” via federally subsidized exchanges, that model’s future remains in doubt after an executive order by President Donald Trump. The disruption could weigh on health care providers, but Congress is scrambling to find a solution. If it does, the iShares U.S. Healthcare Providers ETF will take off in a relief rally. Of course, Congressional action isn’t the only reason to purchase IHF. Pharmacy benefits giants including Express Scripts Holding Co. (ESRX) and hospital operator HCA Healthcare (HCA) are recession-proof plays that will remain big players in U.S. health care regardless of legislation.
Expenses: 0.44 percent
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7 Health Care ETFs to Buy Now originally appeared on usnews.com
