Healthcare as Defense: HealthShares Cuts ETF Expense Ratios, Targets Higher Volume

HealthShares Reorganizes

On Tuesday, XShares Advisors LLC announced a reorganization of its remaining four HealthShares ETFs. On September 19, XShares shuttered 15 of the 19 HealthShares funds that were then trading, leaving just four HealthShares ETFs: Cancer (NYSE: HHK), Diagnostics (NYSE: HHD), Drug Discovery Tools (NYSE: HHV), and European Drugs (NYSE: HRJ).

According to the issuer, the four redesigned funds will still offer an 'equal weight' approach to focused healthcare sector investing, but have diversified from 22 underlying components each to between 28 and 35 per fund.

The newly construed funds also feature lower expense ratios. Three of the four have a cap on expenses of 0.60%, and one of 0.72%. Their capitalization requirement has also risen to a minimum of $100 million per fund.

chart courtesy of XShares - data as of 10/21/08

According to XShares CEO Joseph L. Schocken:

"These four ETFs have demonstrated significant investor interest since their launch, and continue to offer healthcare investors subsector exposure that might otherwise be difficult to obtain. While we've increased the number of stocks in these ETFs, they still provide focused exposure to their market segment, but do so with greater diversification."

Competitors

The HealthShares ETFs compete against broader healthcare sector ETFs, including iShares Dow Jones U.S. Healthcare Sector Index Fund ETF (IYH), Health Care Select Sector SPDR ETF (XLV), Vanguard Health Care ETF (VHT). The broader sector ETFs generally have lower expense ratios (the iShares Dow Jones U.S. Healthcare Sector Index Fund ETF has an expense ratio of 0.48%, for example), but lack the more precise sub-sector targeting of the HealthShares ETFs for those who want that. Here's a complete listing of primary sector ETFs.

Targeting Greater Liquidity

The changes should help the four HealthShares ETFs to increase net assets and liquidity.

According to HealthShares' website, the funds contained the following net asset totals (as of Tuesday's close):

• HHK: $8.081 million
• HHD: $14.143 million
• HHV: $7.779 million
• HRJ: $1.606 million

According to Yahoo Finance, average three-month daily volume for the funds is thin:

• HHK: 10,768
• HHD: 11,497
• HHV: 9,835
• HRJ: 955

Based on the above data, the European Drugs ETF requires the greatest increase in liquidity and trading volume.

This isn't an easy market environment for any issuer to bet on rising asset inflows or share prices. But healthcare is widely regarded as a defensive sector. Moreover, the retirement of the baby boomers is a threat to many sectors, but should be beneficial for the healthcare sector.

Comments

[sieraromero:]

Thank You

2008 Oct 23 10:45 AM