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 indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indexes 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. The fund was launched in December 1998. The expense ratio is .20%. Assets under Management (AUM) equal over $3.4 billion and average daily trading volume are over 15M shares. As of late October 2011 the dividend is $.66 making the current yield 2.02% with YTD performance over 6.60%.

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 5.43%.

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

 

Data as of October 2011

XLV Top Ten Holdings & Weightings
  1. Johnson & Johnson (JNJ): 13.97%
  2. Pfizer Inc (PFE): 11.04%
  3. Merck & Co Inc (MRK): 8.06%
  4. Abbott Laboratories (ABT): 5.40%
  5. Bristol-Myers Squibb Company (BMY): 4.31%
  6. Amgen Inc (AMGN): 4.06%
  7. UnitedHealth Group Inc (UNH): 4.00%
  8. Eli Lilly and Company (LLY): 3.01%
  9. Medtronic, Inc. (MDT): 2.82%
  10. Baxter International Inc. (BAX): 2.59%

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 $670 million and average daily trading volume is a low 130K shares. The lower volume indicates Vanguard's financial advisor audience with more of a buy and hold philosophy. As of late October 2011 the annual dividend was $.098 making the current yield 1.92% and YTD return in excess of 7%.

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 October 2011

VHT Top Ten Holdings & Weightings
  1. Johnson & Johnson (JNJ): 10.50%
  2. Pfizer Inc (PFE): 9.51%
  3. Merck & Co Inc (MRK): 6.28%
  4. Abbott Laboratories (ABT): 4.70%
  5. UnitedHealth Group Inc (UNH): 3.26%
  6. Amgen Inc (AMGN): 3.14%
  7. Bristol-Myers Squibb Company (BMY): 2.85%
  8. Medtronic, Inc. (MDT): 2.39%
  9. Eli Lilly and Company (LLY): 2.26%
  10. Baxter International Inc. (BAX): 2.00%

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 $512 million while average daily trading volume is just fewer than 109K shares. As of late October 2011 the annual dividend was $1.07 making the current yield 1.60% with YTD return of 7.10%.

Data as of October 2011

IYH Top Ten Holdings & Weightings
  1. Johnson & Johnson (JNJ): 12.75%
  2. Pfizer Inc (PFE): 10.09%
  3. Merck & Co Inc (MRK): 7.36%
  4. Abbott Laboratories (ABT): 5.83%
  5. Bristol-Myers Squibb Company (BMY): 3.95%
  6. Amgen Inc (AMGN): 3.75%
  7. UnitedHealth Group Inc (UNH): 3.63%
  8. Eli Lilly and Company (LLY): 2.66%
  9. Medtronic, Inc. (MDT): 2.58%
  10. Baxter International Inc. (BAX): 2.36%

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 $235 million and has an average daily trading volume 37K shares. As of late October 2011 the annual dividend is $.46 making the current yield .96% with YTD performance of just over 6.40%.

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 October 2011

XPH Top Ten Holdings & Weightings
  1. Bristol-Myers Squibb Company (BMY): 4.45%
  2. Perrigo Company (PRGO): 4.42%
  3. Salix Pharmaceuticals, Ltd. (SLXP): 4.41%
  4. Allergan, Inc. (AGN): 4.34%
  5. Watson Pharmaceuticals Inc. (WPI): 4.29%
  6. Merck & Co Inc (MRK): 4.25%
  7. Eli Lilly and Company (LLY): 4.23%
  8. Abbott Laboratories (ABT): 4.20%
  9. Johnson & Johnson (JNJ): 4.14%
  10. Jazz Pharmaceuticals, Inc. (JAZZ): 4.11%

 

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 $1.3 billion while average daily trading volume in near 837K shares. As of late October 2011 the YTD gain of 5.50%.

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 October 2011 is -6.90%.

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 late October 2011 YTD return of -8.97.10%.

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 late October 2011 is -8.97%.

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 October 2011

IBB Top Ten Holdings
  1. Pharmasset, Inc. (VRUS): 8.01%
  2. Amgen Inc (AMGN): 7.93%
  3. Celgene Corporation (CELG): 6.16%
  4. Alexion Pharmaceuticals, Inc. (ALXN): 6.13%
  5. Gilead Sciences Inc (GILD): 5.16%
  6. Teva Pharmaceutical Industries Ltd ADR (TEVA): 4.47%
  7. Vertex Pharmaceuticals (VRTX): 4.40%
  8. Perrigo Company (PRGO): 4.38%
  9. Biogen Idec Inc (BIIB): 4.33%
  10. Regeneron Pharmaceuticals, Inc. (REGN): 3.81%

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 $273 million and average daily trading volume is 365K shares. As of late October 2011, the annual dividend is $.06 making the yield.23% and an YTD return of 5.20%

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 October 2011

FXH Top Ten Holdings & Weightings
  1. Perrigo Company (PRGO): 2.64%
  2. Regeneron Pharmaceuticals, Inc. (REGN): 2.55%
  3. Cephalon Inc (CEPH): 2.47%
  4. Eli Lilly and Company (LLY): 2.45%
  5. Watson Pharmaceuticals Inc. (WPI): 2.39%
  6. Catalyst Health Solutions, Inc. (CHSI): 2.36%
  7. Cooper Companies (COO): 2.33%
  8. LifePoint Hospitals, Inc. (LPNT): 2.30%
  9. SXC Health Solutions Corporation (SXCI): 2.27%
  10. Vertex Pharmaceuticals (VRTX): 2.13%

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 $47 million and average daily trading volume is around 33K shares. As of late October 2011 the annual dividend is negligible while the YTD return is over 5.35%.

Data as of October 2011

PTH Top Ten Holdings & Weightings
  1. Intuitive Surgical, Inc. (ISRG): 2.55%
  2. Humana (HUM): 2.53%
  3. Agilent Technologies Inc (A): 2.53%
  4. Eli Lilly and Company (LLY): 2.51%
  5. WellPoint Inc (WLP): 2.50%
  6. Aetna Inc (AET): 2.50%
  7. McKesson, Inc. (MCK): 2.50%
  8. Pfizer Inc (PFE): 2.49%
  9. CIGNA Corp (CI): 2.49%
  10. Baxter International Inc. (BAX): 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 $343M with average daily trading volume around 55K shares. As of late October 2011 the annual dividend was $.11 making the current yield roughly only.19% while the YTD return was 3.05%.

Data as of October 2011

IHI Top Ten Holdings & Weightings
  1. Medtronic, Inc. (MDT): 10.21%
  2. Covidien, Ltd. (COV): 7.49%
  3. Thermo Fisher Scientific Inc (TMO): 7.22%
  4. Intuitive Surgical, Inc. (ISRG): 6.04%
  5. Stryker Corporation (SYK): 5.99%
  6. St Jude Medical, Inc. (STJ): 5.04%
  7. Zimmer Holdings Inc (ZMH): 4.93%
  8. Boston Scientific, Inc. (BSX): 4.49%
  9. Waters Corporation (WAT): 3.96%
  10. Varian Medical Systems, Inc. (VAR): 3.67%

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 $198 million with average daily trading volume over 124K shares. As of July 2011 the annual dividend yield is .24% and YTD return is nearly 5.20%. 

Data as of October 2011

IHF Top Ten Holdings & Weightings
  1. UnitedHealth Group Inc (UNH): 14.04%
  2. WellPoint Inc (WLP): 8.55%
  3. Medco Health Solutions, Inc. (MHS): 6.73%
  4. Express Scripts (ESRX): 6.23%
  5. Aetna Inc (AET): 5.52%
  6. Humana (HUM): 5.16%
  7. CIGNA Corp (CI): 4.83%
  8. Laboratory Corporation of America Holdings (LH): 3.73%
  9. Quest Diagnostics Inc (DGX): 3.70%
  10. DaVita Inc (DVA): 2.88%

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 $506 million with average daily trading volume around 92K shares. As of late October 2011 the annual dividend was $.1.20 making the current yield 2.20% with YTD return of 7.65%.

Data as of November 2011

IXJ Top Ten Holdings & Weightings
  1. Johnson & Johnson (JNJ): 8.36%
  2. Novartis AG (NVSEF): 7.36%
  3. Pfizer Inc (PFE): 6.61%
  4. Roche Holding AG (RHHVF): 5.46%
  5. GlaxoSmithKline PLC (GLAXF): 5.05%
  6. Merck & Co Inc (MRK): 4.83%
  7. Abbott Laboratories (ABT): 3.81%
  8. Sanofi (SAN): 3.68%
  9. AstraZeneca PLC (AZN): 2.89%
  10. Bristol-Myers Squibb Company (BMY): 2.56%

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 indexes 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. 

As stated with other sectors, remember ETF sponsors must issue and their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

 

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

 

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

 

The ETF Digest has no current position in the featured securities.

 

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

 

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.

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