Top 10 Healthcare ETFs

The healthcare sector enjoyed a positive year in 2011 despite volatility in overall markets. This is because the sector is often perceived as more defensive no matter uncertainties surrounding government healthcare changes and mandates.

There is a lot to choose from in terms of indexes linked to ETFs. Some indexes are passive and duplicative relatively while some are "enhanced" making them quasi-active. The latter apply quantitative analytical techniques and skills to provide outperformance. Investors should note that in a rising market, particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues.

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. 

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 healthcare 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.

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.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

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.

#10: PowerShares Dynamic Pharmaceuticals ETF (PJP)

PJP follows the Dynamic Pharmaceuticals Intellidex Index which is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.

The fund was launched in June 2005. The expense ratio is .60%. AUM equal $244 million and average daily trading volume is 110K shares. As of early February 2012 the annual dividend yield was .62% and YTD return 5.32%. The one year return was 28.47% demonstrating the higher volatility with enhanced indexes.

Data as of First Quarter 2012

PJP Top Ten Holdings
  1. Amgen Inc (AMGN): 5.24%
  2. Pfizer Inc (PFE): 5.23%
  3. Bristol-Myers Squibb Company (BMY): 5.21%
  4. Eli Lilly and Company (LLY): 5.20%
  5. Merck & Co Inc (MRK): 5.07%
  6. Abbott Laboratories (ABT): 4.81%
  7. Johnson & Johnson (JNJ): 4.77%
  8. Gilead Sciences Inc (GILD): 4.64%
  9. Salix Pharmaceuticals, Ltd. (SLXP): 3.31%
  10. Prestige Brands Holdings Inc (PBH): 3.26%

#9: iShares Dow Jones U.S. Healthcare Providers ETF (IHF)

IHF tracks the Dow Jones U.S. Select Healthcare 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 $237 million with average daily trading volume over 88K shares.

As of late early February 2012 the annual dividend yield was yield .13%% with YTD performance 6.19%. The one year return was 6.35%

Data as of First Quarter 2012

IHF Top Ten Holdings
  1. UnitedHealth Group Inc (UNH): 12.88%
  2. Medco Health Solutions, Inc. (MHS): 7.47%
  3. Express Scripts (ESRX): 7.36%
  4. WellPoint Inc (WLP): 6.89%
  5. Aetna Inc (AET): 5.57%
  6. Humana (HUM): 5.18%
  7. Cigna Corp (CI): 4.74%
  8. Laboratory Corporation of America Holdings (LH): 3.82%
  9. Quest Diagnostics Inc (DGX): 3.70%
  10. DaVita Inc (DVA): 3.33%

#8: SPDR Pharmaceuticals ETF (XPH)

XPH follows the S&P Pharmaceuticals Select Industry Index which measures the pharmaceuticals sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Pharmaceuticals Index is an equal weighted market cap index.

The fund was launched in June 2006. AUM equal $314 million and average daily trading volume is 67K shares. As of early February 2012 the annual dividend yield was .97% and YTD return 4.54%. The one year return was17.44%.

Data as of First Quarter 2012

XPH Top Ten Holdings
  1. Jazz Pharmaceuticals PLC (JAZZ): 5.08%
  2. Hospira, Inc. (HSP): 4.93%
  3. Warner Chilcott PLC A (WCRX): 4.42%
  4. Endo Pharmaceutical Holdings, Inc. (ENDP): 4.39%
  5. ViroPharma, Inc. (VPHM): 4.35%
  6. Merck & Co Inc (MRK): 4.31%
  7. Forest Laboratories, Inc. (FRX): 4.30%
  8. Salix Pharmaceuticals, Ltd. (SLXP): 4.29%
  9. Allergan, Inc. (AGN): 4.23%
  10. Pfizer Inc (PFE): 4.18%

#7: First Trust Healthcare AlphaDEX ETF (FXH)

FXH follows the StrataQuant Healthcare index which is an "enhanced" index developed, maintained and sponsored by the NYSE Euronext or its affiliates which employs the AlphaDEX stock selection methodology to select Healthcare stocks from the Russell 1000 Index. The fund was launched in May 2007.

The expense ratio is .70%. AUM equal $550 million and average daily trading volume is 260K shares. As of early February 2012 the annual dividend yield was .12% and YTD return 7.74%. The one year return was 8.05%.

Data as of First Quarter 2012

FXH Top Ten Holdings
  1. Amerigroup Corporation (AGP): 3.39%
  2. Tenet Healthcare Corp (THC): 2.78%
  3. Alexion Pharmaceuticals, Inc. (ALXN): 2.50%
  4. Biomarin Pharmaceutical, Inc. (BMRN): 2.41%
  5. Coventry Healthcare, Inc. (CVH): 2.36%
  6. Community Health Systems Inc (CYH): 2.35%
  7. Intuitive Surgical, Inc. (ISRG): 2.28%
  8. SXC Health Solutions Corporation (SXCI): 2.27%
  9. Perrigo Company (PRGO): 2.24%
  10. AmerisourceBergen Corp (ABC): 2.23%

#6: iShares DJ U.S. Pharmaceutical ETF (IHE)

IHE follows the Dow Jones U.S. Select Pharmaceutical Index which measures the performance of this sector of the U.S. equity market. The fund was launched in May 2006. The expense ratio is .48%. AUM equal $385 and average daily trading volume is 75K shares. As of early February 2012 the annual dividend yield is 1.16% and YTD return 3.44%.

The one year return was a high 24.65% once again indicating higher volatility within this sector and a flight to a more defensive sector during 2011 chaotic market conditions.

Data as of First Quarter 2012

IHE Top Ten Holdings
  1. Johnson & Johnson (JNJ): 9.61%
  2. Pfizer Inc (PFE): 9.37%
  3. Merck & Co Inc (MRK): 8.30%
  4. Abbott Laboratories (ABT): 6.87%
  5. Bristol-Myers Squibb Company (BMY): 5.69%
  6. Eli Lilly and Company (LLY): 5.10%
  7. Allergan, Inc. (AGN): 4.54%
  8. Mylan Inc (MYL): 3.08%
  9. Forest Laboratories, Inc. (FRX): 2.97%
  10. Hospira, Inc. (HSP): 2.86%

#5: iShares U.S. Medical Devices ETF (IHI)

IHI 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 .47%. AUM equal $360M with average daily trading volume around 50K shares. As of late early February 2012 the annual dividend yield was .24% with YTD performance 11.94%. The one year return was 5.78%.

The two distinguishing YTD performance versus the one year return reflects more volatility in the index.

Data as of First Quarter 2012

IHI Top Ten Holdings
  1. Medtronic, Inc. (MDT): 10.59%
  2. Covidien PLC (COV): 8.39%
  3. Thermo Fisher Scientific Inc (TMO): 7.26%
  4. Intuitive Surgical, Inc. (ISRG): 6.54%
  5. Stryker Corporation (SYK): 6.37%
  6. St Jude Medical, Inc. (STJ): 5.68%
  7. Zimmer Holdings Inc (ZMH): 5.35%
  8. Boston Scientific, Inc. (BSX): 4.30%
  9. Waters Corporation (WAT): 4.05%
  10. Varian Medical Systems, Inc. (VAR): 3.85%

#4: iShares S&P Global Healthcare ETF (IXJ)

IXJ follows the S&P Global Healthcare 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 $542 million with average daily trading volume around 42K shares.

As of late early February 2012 the annual dividend yield was yield 2.13% with YTD performance 3.42%. The one year return was 11.76%

Data as of First Quarter 2012

IXJ Top Ten Holdings
  1. Johnson & Johnson (JNJ): 7.91%
  2. Pfizer Inc (PFE): 7.23%
  3. Novartis AG (NVSEF): 6.53%
  4. Roche Holding AG (RHHVF): 5.23%
  5. Merck & Co Inc (MRK): 5.13%
  6. GlaxoSmithKline PLC (GLAXF): 4.93%
  7. Sanofi (SAN): 3.77%
  8. Abbott Laboratories (ABT): 3.71%
  9. AstraZeneca PLC (AZN): 2.75%
  10. Bayer AG (BAYN): 2.55%

#3: iShares Dow Jones U.S. Healthcare ETF (IYH)

IYH follows the Dow Jones U.S. Healthcare Index which includes most constituents from the Healthcare sector. The fund was launched in June 2006. The expense ratio is .47%. AUM equal $627 million while average daily trading volume is just fewer than 50K shares.

As of late early February 2012 the annual dividend yield was yield 1.49% with YTD performance 4.79%. The one year return was 13.41%

Data as of First Quarter 2012

IYH Top Ten Holdings

  1. Johnson & Johnson (JNJ): 11.89%
  2. Pfizer Inc (PFE): 10.85%
  3. Merck & Co Inc (MRK): 7.76%
  4. Abbott Laboratories (ABT): 5.56%
  5. Amgen Inc (AMGN): 3.93%
  6. UnitedHealth Group Inc (UNH): 3.68%
  7. Bristol-Myers Squibb Company (BMY): 3.65%
  8. Medtronic, Inc. (MDT): 2.70%
  9. Eli Lilly and Company (LLY): 2.57%
  10. Gilead Sciences Inc (GILD): 2.42%

#2: Vanguard Healthcare ETF (VHT)

VHT follows the MSCI US Investable Market Healthcare 25/50 Index and is another broad index covering the entire spectrum of the Healthcare industry. The fund was launched in January 2004. The expense ratio is .19%. AUM equal $780 million and average daily trading volume is a low 73K shares.

The lower volume indicates Vanguard's financial advisor audience with more of a buy and hold philosophy. As of late early February 2012 the annual dividend yield was yield 1.65% with YTD performance 5.55%. The one year return was 13.30%

Data as of First Quarter 2012

VHT Top Ten Holdings
  1. Johnson & Johnson (JNJ): 11.51%
  2. Pfizer Inc (PFE): 9.20%
  3. Merck & Co Inc (MRK): 6.65%
  4. Abbott Laboratories (ABT): 5.24%
  5. Bristol-Myers Squibb Company (BMY): 3.53%
  6. Amgen Inc (AMGN): 3.37%
  7. UnitedHealth Group Inc (UNH): 3.29%
  8. Eli Lilly and Company (LLY): 2.54%
  9. Medtronic, Inc. (MDT): 2.34%
  10. Baxter International Inc. (BAX): 2.11%

#1: SPDR Healthcare Sector ETF (XLV)

XLV follows the Healthcare Select Sector Index. The fund was launched in December 1998. The expense ratio is .19%. Assets under Management (AUM) equal $4 billion and average daily trading volume is over 7M shares.

As of late early February 2012 the annual dividend yield was yield 1.90% with YTD performance 4.21%. The one year return was 13.97%

Data as of First Quarter 2012

XLV Top Ten Holdings
  1. Johnson & Johnson (JNJ): 12.95%
  2. Pfizer Inc (PFE): 11.84%
  3. Merck & Co Inc (MRK): 8.39%
  4. Abbott Laboratories (ABT): 5.15%
  5. UnitedHealth Group Inc (UNH): 4.01%
  6. Bristol-Myers Squibb Company (BMY): 3.95%
  7. Amgen Inc (AMGN): 3.88%
  8. Medtronic, Inc. (MDT): 2.94%
  9. Eli Lilly and Company (LLY): 2.91%
  10. Gilead Sciences Inc (GILD): 2.64%

 

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

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.

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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