Three Healthy Options for Foreign ETFs

In the last few weeks, SPDR launched 10 foreign-sector ETFs, adding to the marketplace a third foreign-sector ETF methodology. WisdomTree weights components by dividends, and iShares is actually a mix of foreign and domestic stocks (what they call global). SPDR weights its foreign-sector ETFs by market capitalization.

No single methodology can be the best for all sectors all the time. If you want to build a portfolio sector by sector and include foreign-sector ETFs, you must take a close look at each sector and evaluate its health now and prospects down the road.

As an example, we can look at the health care sector:

iShares S&P Global Healthcare Sector Index Fund(IXJ)

WisdomTree International Healthcare Sector Fund(DBR)

SPDR S&P International Healthcare Sector ETF(IRY)

IXJ is actually quite heavy in the U.S., at 63%. Over the last couple of years it has lagged DBR because, broadly speaking, of its U.S. exposure -- and more narrowly because of its weighting in Pfizer(PFE), which currently stands at 5.6%.

Two years ago, Pfizer's market cap was close to $225 billion, vs. today's $125 billion -- so that roughly $100 billion of market cap lost has been a drag on IXJ.

Looking forward, I think Pfizer holds the key to whether IXJ will be the best choice in this space.

(Four years ago, I wrote an article that was bearish on Pfizer, because I did not see where it would find new revenue to provide strong growth. Estimates for this year call for $48 billion in revenue -- less than the revenue from four years ago.)

For now, I don't expect much from Pfizer, but at some point if there is a real resurgence, IXJ would clearly be the best hold. The bull case now for IXJ is the chance to own Johnson & Johnson(JNJ) and Novartis(NVS) in one ETF.