These ETFs Lack Health Care's Promise

In 2006, the health care sector as measured by the iShares Dow Jones U.S. Health Care Index Fund(IYH Quote) lagged the S&P 500 by a wide margin. But there's reason to investigate the sector as we step into 2007.

Sometimes a sector that lags badly one year can provide leadership the next, so that's one cause for hope. Another possible catalyst for the sector in 2007 could be a slowdown in the economy. If the economy does slow down, the relative inelasticity of demand for health care products is a plus.

So in the interest of looking for a better mousetrap, iShares recently listed three subsector ETFs that I found worth exploring. However, the new vehicles came up short in the final estimation.

The fund most similar to the IYH is the iShares Dow Jones U.S. Pharmaceuticals Index Fund(IHE Quote). IYH has 48% in pharma stocks, so the two ETFs have a 0.83 correlation, and seven stocks appear in both funds' top 10s, including large weightings in Pfizer(PFE Quote), Johnson & Johnson(JNJ Quote) and Merck(MRK Quote). ...