This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

How Health Care ETFs Can Strengthen Your Portfolio

Stocks in this article: IBBXLVSPYFXH

More aggressive investors may be interested in honing in on an industry group like biotech stocks that have been a rocket ship of momentum. The iShares NASDAQ Biotechnology ETF (IBB) has over $5 billion invested in 123 companies focused on developing new innovative pharmaceutical and medical devices. In 2013, this ETF returned a whopping 65.47% gain on the back of stellar performance from some of its largest underlying holdings. Last year wasn't necessarily a fluke either, IBB boasts three-year annualized returns of 34.67% and five-year annualized returns of 26.52%.

Biotechnology stocks are known to be more volatile because of their hit-or-miss business models which often times lead to periods of strong outperformance or underperformance. Often times their stocks are affected by factors such as FDA approval, drug trials, R&D costs, and other unforeseen events. However, they can also lead to big profits when new products are developed and successfully tested.

Another interesting ETF that treads the line between passive and active investing in the health care field is the First Trust Health Care AlphaDEX Fund (FXH). This ETF is a "smart beta" strategy that screens health care stocks for book value, cash flow, and return on assets. It then weights the components according to their scores in these categories. Because the index is rebalanced quarterly, it is being refreshed with companies that have strong fundamental business characteristics.

FXH currently has nearly $2 billion invested in 76 companies. One of the benefits of this strategy is that you get a broader subset of health care stocks that include more small and mid-cap companies as opposed to just large-cap names. The total return of this ETF in 2013 was 47.55% which bested XLV despite having a higher expense ratio of 0.70%.

A quick look at the charts above shows that these ETFs have been aggressively bought on nearly every dip down to their 50-day moving average. In addition, the recent push higher has brought them all the way back in striking distance of new all-time highs. This may not be the optimal point to establish new positions given the lofty heights that they have reached.

I would not be hesitant to add to this sector on a modest pullback that gives you a better opportunity for long-term success. In addition, I recommend that you implement a stop loss or sell discipline to guard against the potential of a protracted decline. Stocks have certainly been more volatility in 2014 than they were last year, but that also means that there may be opportunities to put money to work at more advantageous prices.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs