All of this talk about health care reform… and yet, very little talk about health care as a profitable sector for investors. I have discussed the extremely impressive run for biotechnology throughout the bear market, however. (See “Biotech ETFs Lift Portfolios Higher Than Broad-Based Health Care ETFs and/or “Pharma ETFs, Biotech ETFs Are Benefiting From Swine and Politics.”)
The biotech bonanza aside, the dramatic collapse of Lehman (OTC:LEHMQ) did not spell doom for Healthcare ETF enthusiasts. In fact, many Healthcare ETFs are better off today than they were 1 year ago.
|Healthcare ETFs Are 1-Year Winners|
|First Trust Biotechnology (FBT)||17.9%|
|SPDR Pharmaceuticals (XPH)||7.4%|
|iShares DJ Pharmaceuticals (IHE)||5.2%|
|FirstTrust AlphaDEX Healthcare (FXH)||3.6%|
|Rydex Equal Weight Healthcare (RYH)||1.0%|
While Healthcare ETFs may be pre- and post-Lehman success stories, momentum-based, cyclical bull riders may want to know how these same ETFs have done since 3/9/09. After all, most economic segments have shot up like cannonballs off of the March bottom.
|Healthcare ETFs Post March Bottom |
|First Trust Biotechnology (FBT)||75.4%|
|SPDR Pharmaceuticals (XPH)||45.6%|
|iShares DJ Pharmaceuticals (IHE)||46.0%|
|FirstTrust AlphaDEX Healthcare (FXH)||60.7%|
|Rydex Equal Weight Healthcare (RYH)||53.3%|
|S&P 500 SPDR Trust (SPY)||59.2%|
Arguably, Healthcare ETFs were plenty powerful off of the lows as well; two of the 5 “out-rocketed” the S&P 500 SPDR Trust (SPY) and only “big pharma” seems a little slow.
One could (and probably should) say that the slower, steadier turtle wins the race… not the fleet-of-foot rabbit. Then again, the way investors have been piling into risk, a momentum-based bullish stampede is the domain of tech and emerging markets.
So then, it all comes down to the $103 million-dollar question: Should you become more defensive with healthcare, staples and cash in anticipation of a correction… or should you keep riding ”the riskier-the-better” wave through year-end?
I know that just about everyone is expecting a correction… myself included. That sort of “groupthink” is enough to make me wonder if there’s any stopping the cheap U.S. dollar from being reinvested in stocks this year.
That said, I’m still in the camp that believes pullbacks are beneficial. In fact, if this cyclical bull is going to last for more than 12 months, we’re going to need profit-taking. Otherwise, we’d simply be watching yet another runaway train with no earthly business being on the tracks.
Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.