Invest in health care ETFs with more precision. Health care investments have broad appeal. From stock pickers riding a fast-moving drug startup to long-term investors enjoying stability and dividends, this part of the market brings…
Invest in health care ETFs with more precision.
Health care investments have broad appeal. From stock pickers riding a fast-moving drug startup to long-term investors enjoying stability and dividends, this part of the market brings several positives. These stocks also can help limit the effects of volatility on a portfolio. In response to this interest, there are plenty of low-cost exchange-traded funds with medical themes. It’s important to remember, however, that not every health care ETF is created equally. Depending on your strategy and personal portfolio, it may be much wiser to look beyond broad-based health funds to a more finely focused investment strategy. Here are eight ETFs that do that.
To move beyond a broad health care fund to more thematic and tactical ETFs, then consider the aptly tickered SLIM ETF, which is targeted on drug makers, medical device companies and service stocks that make a portion of their profits from obesity-related treatments. There are a few more consumer-focused names, such as nutrition company Herbalife Nutrition (HLF) and dieting icon Weight Watchers International (WTW) that aren’t traditional health plays. But there are also more standard firms including diabetes treatment giant Novo Nordisk (NVO) that is the top holding at present and second-largest position Fresenius Medical Care (FMS), which specializes in kidney dialysis.
Another specific choice on health care worth exploring now is an investment in the companies profiting from a demographic shift in the Western world that features a population of seniors living longer. This shift means a bigger demand for services specific to the elderly. The LNGR ETF allows you to tap into this longevity trend by investing in stocks “positioned to serve the world’s growing senior population.” That means medical device companies like Boston Scientific Corp. (BSX), which is a leading provider of radiology solutions used to monitor the health of older patients, and neuroscience company Biogen (BIIB), currently researching treatments for Alzheimer’s disease.
If you simply want to tap into a diversified group of fast-growing medical stocks, then consider XBI. Holdings are commonly “development phase” companies, meaning these are smaller research organizations investing in the next generation of cures and currently undergoing drug trials. When a new treatment achieves a favorable result or wins investor optimism, it can often send a small stock soaring. That’s what has happened to top XBI holding Ionis Pharmaceuticals (IONS). The opposite can also occur, with disappointing news on a treatment sending a stock tumbling. With more than 120 holdings, this fund has a good history of holding more winners than big losers.
Another way to tap into health care stocks is to chase the momentum leaders. That’s what the PTH fund does, with a strategy that focuses on medical-related stocks and then overlays key metrics such as relative strength compared with peer companies in the sector and share price momentum versus the market at large. The result is a varied list of just 46 holdings at present. Top holdings now include insurance provider UnitedHealth Group (UNH) as well as smaller biopharmaceutical stock PTC Therapeutics (PTCT) that specializes in treatments for rare forms of muscular dystrophy.
Investors less interested in riding the roller coaster of small biotech companies can target more established drug makers via the PPH fund. Consisting of stable mega-caps and just 25 total holdings at present, this ETF is a who’s who list of the biggest names, from domestic mainstays like Merck & Co. (MRK) to the U.K.’s AstraZeneca (AZN) and France’s Sanofi (SNY). Collectively, this small list of big stocks represents the lion’s share of the global pharmaceuticals marketplace. If you’d rather believe in big pharma than take on the risk of development stage biotechs, PPH is your best bet.
Drugs are only one piece of the health care puzzle. While many investors have come to love the reliable dividends from pharma stocks or enjoy chasing fast-moving small-cap drug makers, it’s worth noting there is a lot of money to be made in medical devices, surgical tools and even the gloves and bandages that are necessities in hospitals and doctors offices. Top holdings in IHI include lab tools and cell culture leader Thermo Fisher Scientific (TMO) and cardiovascular device company Medtronic (MDT). These medical devices and items are important links in the chain of successful health care treatments worldwide.
While for-profit health insurance has been under a lot of uncertainty in the U.S. thanks to politics, the election of a Democratic majority in the House of Representatives and a Republican-controlled Senate likely means the status quo will remain. That has been good news for top IHF holdings that run the gamut across insurance-related industries, from pharmacy benefits giant and drugstore CVS Health Corp. (CVS) to primary care insurance provider Anthem (ANTM). The gridlock expected in 2019 should stabilize the fortunes of the IHF stocks for the foreseeable future.
If you want something a bit different than the typical vanilla health care investment, then check out this Invesco ETF that has a bias toward the smaller companies in the sector. You may not recognize many of the components that make up the PSCH fund, such as hospice care provider Amedisys (AMED) or testing firm Neogen Corp. (NEOG), but the 67 picks included in this ETF are certain to provide a different flavor to a portfolio than the typical health care fund full of familiar names.