Healthcare ETFs Are Outpacing the Market

The accompanying table (click to enlarge) presents an analysis and statistics for the 28 healthcare ETFs listed at the Yahoo Finance ETF Center. As a group, the healthcare ETFs outpaced the overall market in the past year by more than 10%, posting an average loss of 26.5% compared to a loss of 37.4% for the S&P 500 SPDR ETF (SPY). The best performing healthcare ETF was the Biotech HOLDRs (BBH), thanks to a buyout bid for top holding Genetech (DNA) and solid earnings results this year for the number two position, Amgen (AMGN).

The top three holdings (DNA, AMGN, GILD) account for over 80% of BBH, reinforcing the point that solid returns over the past year occurred in the healthcare ETFs which were heavily weighted in large and mega-cap companiesthat were either takeover targets or posted solid results in the midst of market uncertainty. Examples include Genetech, Amgen, Johnson & Johnson (JNJ), ImClone Systems (IMCL), Abbott Labs (ABT), Gilead Sciences (GILD), and Celgene (CELG), which dominate the top three holdings of the best performing healthcare ETFs listed in the accompanying table.

Also, there is a clear difference in performance in the eight health ETFs with net assets over $500M, which outpaced the 20 health ETFs below that level by 9% over the past year, posting an average loss of 20.1% versus 29.1%, respectively. Even with the drastic reduction in the HealthShares line-up of 15 ETFs that were removed from the market, there are still 12 health ETFs trading with less than $50M in net assets and 11 with a three-month average trading volume of less than 25,000 shares per day.

Given the potential for liquidity issues and wide bid/ask spreads for ETFs with less than $50M in net assets and/or less than 25,000 shares traded; investors should focus on the funds which trade above these thresholds as they will likely continue to outperform and do not carry the liquidity or closure risk of the less popular funds. Below is a table with a summary and statistics of the five ETFI healthcare indexes and new ETF ideas.