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Unique HealthShares ETFs Deserve a Look

Last week, a company called XShares Advisors launched the first five of what will be many more ETFs focused on narrow subsectors within the health care sector. The product line is aptly called HealthShares.

The first five:

  • HealthShares Cardio Devices (HHE)
  • HealthShares Diagnostic (HHD)
  • HealthShares Emerging Cancer (HHJ)
  • HealthShares Enabling Technologies (HHV)
  • HealthShares Patient Care Services (HHB)
  • Above anything else, these are unique. You can decide for yourself whether "unique" means they are worthy of your money, but on first glance, I would not idly dismiss them.

    There are a couple of structural differences that could offer better returns but are also likely to increase volatility. First is that most of the funds have 22-25 equally weighted holdings. That the funds have so few holdings should not be a surprise. How many "enabling tech" companies can there be?

    The other important thing is the market cap restrictions; no companies larger than $15 billion. This is important. Chances are a stock like Pfizer (PFE) could be a justified inclusion in most of the funds, but it is unlikely that a mega-cap like that could be a proxy for any of them.

    By excluding large companies, HealthShares give holders of its funds the chance to really participate in the narrowness of these themes. While I should note that there are some fuzzy exceptions to the $15 billion number, the important thing is that Merck (MRK) and Pfizer will not take up 20% of each fund.

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