ETF Update: Focus on Health

Growing strength in health care sectors is the dominant theme in this week's ETF Update.  As usual, there are also some interesting implications for the overall market.

We noted the rise of these sectors in last week's ratings, observing that the market continued to "play defense."  (For new readers there is a further explanation of our approach at the end of the article).

Health Care

Moving up into the "buy range" this week is the iShares S&P Global Healthcare Sector Index Fund (IXJ).  The top five holdings reflect large-cap pharma, but constitute only 32% of the fund.  The P/E ratio is under 20 and the beta only 0.43.

Mike Havrilla points out that most of the health care funds trade at low prices.  He writes as follows:

Despite concerns over the health of the domestic economy along with surging food and energy prices, the healthcare sector has failed to garner investor interest as a safe haven. Most healthcare exchange-traded funds [ETFs] and drug stocks continue to languish near multi-year lows, despite an aging Baby Boomer population and ever-increasing proportion of the gross domestic product [GDP] accounted for by healthcare spending.

He also likes the balance in the top ten holdings with a split between the U.S. and Europe.

Gary Gordon suggests that concerns over government-mandated health care may be weighing on these sectors.  Our own guess is that some health care stocks will benefit from broader benefit plans, but it is too soon to figure out which ones.

To summarize, these sectors are gaining some interest as money moves away from the energy and basic material sectors.  They are defensive and trading at relatively low prices, perhaps because of political concerns.

 

 

 

 

Weekly TCA-ETF Rankings

We added three positions last week, all in the pharmaceutical and health care sectors.  The bottom sectors continue to be financial issues.  There is another interesting feature.  Several of the recent winners have plummeted in the rankings.  These include KOL, MOO, and various energy ETFs that we recently held.  It shows what can happen in the intermediate term when money pours out of a sector.

It is still a very defensive picture.  The model shift to inverse ETFs was a drag on our position this week, but the addition of the health care holdings helped.  Most sectors are still in the "penalty box."  Using the model as our guide, we have continued our multi-week bearish posture in the Ticker Sense blogger sentiment poll.

Listed below are the week's rankings and our trades:

Note for New Readers

Our weekly ETF Update is designed to assist both investors and traders interested in ETFs and Sector Rotation.  Before turning to the current rankings, let us undertake a review for readers new to this series.

Our Method.  In this past article, we described our basic methodology and why we believe the rankings are useful for fundamental traders and technical traders alike.  While we urge readers to check out the entire article, the key point is that ETFs pose challenges and opportunities different from investment in individual stocks.  The fundamentals may be more difficult to assess.  Even with a good grasp on fundamental trends, there is a lot of technically-based trading in ETFs.  This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves.  Here is an article on that point.

The system synopsis. We look at Trending sectors, Cyclical Sectors, and build in an element of Anticipation for both entry and exit -- thus the name of the model, TCA-ETF.  While we do not reveal the exact methodology for spotting trends and cycles, the system is not a "black box."  The basic elements are used by many, and widely reported.  We even discuss the need for human analysis as opposed to black box trading.

We report the rankings each week, now on the weekend with a one-day delay, using the Thursday output from the model.  We monitor and trade this daily, and offer a free report (request via the email address on the top left of the site) for those interested in our weekly trading program.