Top 10 Health Care ETFs

 

Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, and nearly 40 years in the investment business, we can help select those ETFs that matter and may or may not be repetitive. The result is a more manageable list of issues from which to view and make selections.

There is currently an expanding list of 24 ETFs oriented to the health care sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these, investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.

We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another.

ETFs are based on indices tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indices that attempt to achieve better performance through more active management of the index.

Where competitive issues exist and/or repetitive issues available at a fee cost saving, we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

XLV (SPDR Healthcare Sector ETF) follows the Health Care Select Sector Index and like most SPDR issues is the granddaddy having been launched in December 1998. The index covers a wide spectrum of the industry from pharmaceuticals, equipment, providers and biotechnology. The expense ratio is .20%. Assets under Management (AUM) equal over $4 billion and average daily trading volume are over 8.7M shares. As of July 2011 the dividend is $.58 making the current yield 1.60% with YTD performance over 12.70%.

An alternative choice could include IYH (iShares Dow Jones U.S. Healthcare ETF) follows the index of the same name. The expense ratio is higher at .48%. The constituents are similar to XLV while the YTD return as of July 2011 is 12%.

Both ProShares and Direxion Shares maintain leveraged long and short ETFs for hedging or speculation needs.

 

Data as of July 2011

XLV Top Ten Holdings & Weightings

  1. Johnson & Johnson (JNJ): 12.94%
  2. Pfizer Inc (PFE): 11.56%
  3. Merck & Co Inc (MRK): 7.73%
  4. Abbott Laboratories (ABT): 4.92%
  5. UnitedHealth Group Inc (UNH): 4.00%
  6. Amgen, Inc. (AMGN): 3.85%
  7. Bristol-Myers Squibb Company (BMY): 3.53%
  8. Medtronic, Inc. (MDT): 2.94%
  9. Eli Lilly and Company (LLY): 2.71%
  10. Baxter International Inc. (BAX): 2.45%

VHT (Vanguard Health Care ETF) follows the MSCI US Investable Market Health Care 25/50 Index and is another broad index covering the entire spectrum of the health care industry. The fund was launched in January 2004. The expense ratio is .25%. AUM equal $825 million and average daily trading volume is a low 80K shares. The lower volume indicates Vanguard's financial advisor audience with more of a buy and hold philosophy. As of July 2011 the annual dividend was $.098 making the current yield 1.52% and YTD return in excess of 14%.

Recently FocusShares in conjunction with Scottrade launched FHC (Focus Morningstar Health Care ETF) which tracks the Morningstar Health Care Index. The fund needs some seasoning but replicates well other ETFs in the same sector. The attraction is the lower expense ratio .19% and commission free trading for Scottrade clients.

Data as of July 2011

VHT Top Ten Holdings & Weightings

  1. Johnson & Johnson (JNJ): 9.80%
  2. Pfizer Inc. (PFE): 9.80%
  3. Merck & Co, Inc. (MRK): 6.13%
  4. Abbott Laboratories (ABT): 4.57%
  5. Amgen, Inc. (AMGN): 3.04%
  6. Unitedhealth Group, Inc. (UNH): 3.00%
  7. Bristol-Myers Squibb Company (BMY): 2.73%
  8. Medtronic, Inc. (MDT): 2.56%
  9. Eli Lilly and Company (LLY): 2.20%
  10. Gilead Sciences, Inc. (GILD): 2.08%

IYH (iShares Dow Jones U.S. Health Care ETF) follows the Dow Jones U.S. Health Care Index which includes most constituents from the health care sector. The fund was launched in June 2006. The expense ratio is .48%. AUM equal $680 million while average daily trading volume is just fewer than 70K shares. As of July 2011 the annual dividend was $.91 making the current yield 1.25% with YTD return of 11.75%.

Data as of July 2011

IYH Top Ten Holdings & Weightings

  1. Johnson & Johnson (JNJ): 11.74%
  2. Pfizer Inc (PFE): 10.71%
  3. Merck & Co Inc (MRK): 7.00%
  4. Abbott Laboratories (ABT): 5.22%
  5. UnitedHealth Group Inc (UNH): 3. 66%
  6. Amgen, Inc. (AMGN): 3.51%
  7. Bristol-Myers Squibb Company (BMY): 3.21%
  8. Medtronic, Inc. (MDT): 2.69%
  9. Eli Lilly and Company (LLY): 2.38%
  10. Baxter International Inc. (BAX): 2.21%

XPH (SPDR S&P Pharmaceuticals ETF) follows the S&P Pharmaceuticals Select Industry Index. The index covers every stock in the sector listed on the NYSE and NASDAQ by primarily equal weights. The fund was launched in June 2006. The expense ratio is .35%. AUM equal nearly $250 million and has an average daily trading volume 47K shares. As of July 2011 the annual dividend is $.40 making the current yield .77% with YTD performance of just over 11%.

Some investors like the liquidity of PPH (ML Pharmaceutical HOLDRS) which as a trust follows a fixed holding of securities. In this case PPH only holds a little over 11 issues in the trust with JNJ, PFE and MRK representing nearly 60% of the holdings. This means you win big with those three or lose big.  

Data as of July 2011

XPH Top Ten Holdings & Weightings

  1. Jazz Pharmaceuticals, Inc. (JAZZ): 4.76%
  2. Mylan Inc (MYL): 4.31%
  3. Salix Pharmaceuticals, Ltd. (SLXP): 4.28%
  4. Watson Pharmaceuticals Inc. (WPI): 4.18%
  5. Warner Chilcott PLC A (WCRX): 4.18%
  6. Medicis Pharmaceuticals Corporation A (MRX): 4.08%
  7. Bristol-Myers Squibb Company (BMY): 4.06%
  8. Perrigo Company (PRGO): 4.05%
  9. Allergan, Inc. (AGN): 4.05%
  10. Impax Laboratories, Inc. (IPXL): 4.04%

 

IBB (iShares Nasdaq Biotech ETF) follows the NASDAQ Biotechnology Index which consists of biotech and pharmaceutical companies listed on the NASDAQ. The fund was launched in February 2005. The expense ratio is .48%. AUM equal $1.5 billion while average daily trading volume in near 500K shares. As of July 2011, the annual dividend is $2.04 making the current yield just shy of 2.00% with an YTD gain of 14.50%.

A very popular alternative choice is BBH (ML Biotech HOLDERS) which structured as a trust feature fixed holdings. The heavy weight of AMGN, GILD and BIIB together constitute nearly 90% of the holdings. This makes risks higher and rewards potentially greater. As such we would rather focus on the ETF segment.

Another alternative choice is XBI (SPDR Biotech ETF) which offers a more evenly balanced holding structure. The expense ratio is lower at .35%. The rate of return as of July 2011 is also superior at 17.30%.

FBT (First Trust Biotech ETF) follows the NYSE Arca Biotechnology Index. It has an equally weighted index but with only 20 constituents. It has a higher expense ratio of .60% and features as of July 2011 a return of 10.10%.

Lastly, PBE (PowerShares Dynamic Biotech & Genome ETF) follows the Dynamic Biotechnology & Genome Intellidex Index which another "enhanced" index using quantitative measures to outperform more staid indexes. The expense ratio is .60% and the YTD return as of July 2011 is 1.87%.

Both ProShares and Direxion Shares feature leveraged inverse and long ETFs with which to hedge or speculate that approximate trends in this ETF.

Data as of July 2011

IBB Top Ten Holdings & Weightings

  1. Amgen, Inc. (AMGN):  7.35%
  2. Celgene Corporation (CELG): 5.25%
  3. Teva Pharmaceutical Industries Ltd ADR (TEVA): 5.05%
  4. Gilead Sciences Inc (GILD): 4.87%
  5. Pharmasset, Inc. (VRUS): 4.67%
  6. Vertex Pharmaceuticals (VRTX): 4.41%
  7. Biogen Idec, Inc. (BIIB): 4.29%
  8. Alexion Pharmaceuticals, Inc. (ALXN): 3.89%
  9. Illumina, Inc. (ILMN):  3.62%
  10. Perrigo Company (PRGO): 3.44%

FXH (First Trust Health Care AlphaDEX ETF) follows the StrataQuant Health Care Index which is another "enhanced" index which more actively manages constituents via quantitative methodologies from the Russell 1000 Index. The fund was launched in May 2007. The expense ratio is .70%. AUM equal roughly $350 million and average daily trading volume is 146K shares. As of July 2011, the annual dividend is $.03 making the yield .10% and an YTD return of 15.80%

Enhanced indexes can, and have for the most part generally outperformed more staid indexes in rising markets. We haven't done enough research to determine their relative performance in down markets.

Data as of July 2011

FXH Top Ten Holdings & Weightings

  1. Regeneron Pharmaceuticals, Inc. (REGN):  2.99%
  2. Aetna, Inc. (AET): 2.62%
  3. Humana (HUM): 2.58%
  4. Amgen, Inc. (AMGN): 2.54%
  5. WellPoint, Inc. (WLP): 2.51%
  6. Forest Laboratories, Inc. (FRX): 2.50%
  7. Coventry Health Care, Inc. (CVH): 2.47%
  8. Eli Lilly and Company (LLY): 2.45%
  9. SXC Health Solutions Corporation (SXCI): 2.41%
  10. Health Management Associates, Inc. (HMA): 2.35%

 

PTH (PowerShares Dynamic Health Care ETF) follows the Dynamic Healthcare Sector Intellidex Index which is another "enhanced" index which uses quantitative analysis to select and rebalance portfolio constituents to achieve superior returns. The fund was launched in October 2006. The expense ratio is .60%. AUM equal $90 million and average daily trading volume is around 24K shares. As of July 2011 the annual dividend is negligible while the YTD return is over 18%.

Data as of July 2011

PTH Top Ten Holdings & Weightings

  1. Biogen Idec, Inc. (BIIB): 3.08%
  2. Humana (HUM): 2.84%
  3. Waters Corporation (WAT): 2.64%
  4. Cigna Corporation (CI): 2.62%
  5. Thermo Fisher Scientific, Inc. (TMO):  2.60%
  6. WellPoint, Inc. (WLP): 2.59%
  7. Aetna, Inc. (AET): 2.58%
  8. Amgen, Inc. (AMGN):  2.56%
  9. UnitedHealth Group Inc (UNH): 2.54%
  10. Forest Laboratories, Inc. (FRX): 2.49%

IHI (iShares U.S. Medical Devices ETF) follows the Dow Jones U.S. Select Medical Equipment Index which measures the entire spectrum of equipment in the U.S. equity market. The fund was launched in May 2006. The expense ratio is .48%. AUM equal $468M with average daily trading volume around 90K shares. As of July 2011 the annual dividend was $.03 making the current yield roughly only .05% while the YTD return was 13.50%.

Data as of July 2011

IHI Top Ten Holdings & Weightings

  1. Medtronic, Inc. (MDT): 11.20%
  2. Covidien, Ltd. (COV): 8.28%
  3. Thermo Fisher Scientific, Inc. (TMO):  8.05%
  4. Stryker Corporation (SYK): 6.41%
  5. Intuitive Surgical, Inc. (ISRG): 5.86%
  6. St Jude Medical, Inc. (STJ): 5.85%
  7. Zimmer Holdings, Inc. (ZMH): 5.00%
  8. Boston Scientific, Inc. (BSX): 4.58%
  9. Waters Corporation (WAT): 4.06%
  10. Varian Medical Systems, Inc. (VAR): 3.99%

A freshly launched alternative is XHE (SPDR S&P Health Care Equipment ETF) which was launched in January 2011. The expense ratio is lower at .35% and holdings seem similar although much more equally weighted than found in IHI.

 

 

IHF (iShares DJ U.S. Health Care Providers ETF) tracks the Dow Jones U.S. Select Healthcare providers Index which measures the health care provider subsector of the U.S. equity market. As such the index contains fewer holdings. The fund was launched in May 2006. The expense ratio is .48%. AUM equal $355 million with average daily trading volume over 145K shares. As of July 2011 the annual dividend is negligible but the YTD return is nearly 19%. 

Data as of July 2011

IHF Top Ten Holdings & Weightings

  1. UnitedHealth Group Inc (UNH): 14.08%
  2. WellPoint, Inc. (WLP): 8.46%
  3. Express Scripts (ESRX): 7.70%
  4. Medco Health Solutions, Inc. (MHS): 6.84%
  5. Aetna, Inc. (AET): 5.41%
  6. Cigna Corporation (CI): 4.69%
  7. Humana (HUM): 4.57%
  8. Laboratory Corporation of America Holdings (LH): 3.50%
  9. Quest Diagnostics, Inc. (DGX): 3.38%
  10. DaVita Inc (DVA): 3.10%

IXJ (iShares S&P Global Health Care ETF) follows the S&P Global Health Care Index including a wide range of companies from biotech, manufacturing, medical devices and pharmaceuticals. The fund was launched in November 2001. The expense ratio is .48%. AUM equal $550 million with average daily trading volume around 60K shares. As of July 2011 the annual dividend was $.80 making the current yield 1.40% with YTD return of 11.50%.

Data as of July 2011

IXJ Top Ten Holdings & Weightings

  1. Johnson & Johnson (JNJ): 7.82%
  2. Novartis AG (NVSEF): 7.42%
  3. Pfizer Inc (PFE): 6.98%
  4. Roche Holding AG (RHHVF): 5.03%
  5. GlaxoSmithKline PLC (GLAXF): 4.73%
  6. Merck & Co Inc (MRK): 4.67%
  7. Sanofi (SAN): 3.78%
  8. Abbott Laboratories (ABT): 3.51%
  9. AstraZeneca PLC (AZN): 2.94%
  10. Bayer AG (BAYN): 2.85%

 

The health care sector has enjoyed a positive first half of 2011 despite so many uncertainties surrounding government health care changes and mandates. There is a lot to choose from in terms of indices linked to ETFs. Some are passive and duplicative relatively. It's essential to remember it's really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always ignore their interests and align your choices with what serves your objectives best.

Investors should note that in a rising market particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues. I've not done enough analysis to determine their relative performance during down market periods.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

For further information about portfolio structures using this or other ETFs see www.etfdigest.com .

You may address any feedback to: feedback@etfdigest.com   

 

(Source for holding data is from ETF Database and from various sponsors.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

More from ETFs

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?