President Bush's victory last November has given health care stocks their widely expected post-election bounce. But owning individual health care names remains perilous, a lesson learned the hard way most recently by investors in
(MRK - Get Report)
, among others.
One way investors can smooth out the risk -- while paying a third of the costs of the average open-end health care mutual fund -- is to buy health care exchange traded funds, which have the characteristics of a mutual fund yet still trade very much like stocks.
Three of the four health care ETFs available --
Health Care Select Sector SPDR
iShares Dow Jones U.S. Healthcare
Vanguard Health Care VIPERs
-- focus solely on U.S. stocks. Each member of the trio returned close to 9% over the past three months, while the
The XLV, IYH and VHT could be considered top-heavy, with each ETF holding well over 50% of its assets in the same 10 names and 25% of their assets in just two stocks,
(PFE - Get Report)
Johnson & Johnson
. Rounding out the list are:
(AMGN - Get Report)
iShares S&P Global Healthcare Sector
, the fourth pharma ETF, has trailed the U.S. benchmark index by a slight 20 basis points since last October. Since this index also incorporates international manufacturers, it carries European pharma giants
in its top 10, displacing Medtronic, Wyeth and Bristol-Myers Squibb.
The four ETFs shake out quite differently beyond their top 10 holdings, however.
The XLV is a select sector SPDR (often referred to as a "Spider") comprising the 55 health care stocks in the S&P 500. As a result, the XLV is the most concentrated of the group and therefore the most susceptible to price swings if a major pharmaceutical company stumbles.