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Lior Vider
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Lior Vider, is the Founder, Owner and Chairman of www.sponser.co.il, and working as an investment portfolio manager, at Epsilon Investment House. Lior is a Registered Investment manager with the ISA (Israel Securities Authority). He has more than 13 years of experience as a investment portfolio... More
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  • Investing In The Health Care Sector Will Continue To Show High Returns 0 comments
    Mar 25, 2014 3:00 PM | about stocks: FXH, VHT, XLV

    Summary:

    · Health care ETFs have seen Impressive returns in the past years.

    · This is how you need to consider investing in the Health Care sector.

    · A good look at three Health care ETFs: XLV, VHT and FXH.

    Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations. With Obamacare actively recruiting citizens to sign up for health insurance. The demand caused by this trend will assure continued growth in the health care sector in the near future.

    • The Health care sector is 12.7% total of the S&P500.
    • This was the best performing sector in the S&P500 in 2013.
    • The sector includes six sub-sectors, and the main ones are Pharma and Bio-technology, in the Following distribution:

    Below are my favorite scattering investment for the health sector, I will expand on them in the present and following articles:

    1. XLV - General ETF of the Health care sector by SPDR - (15% of total).

    2. VHT - General ETF of the Health care sector by Vanguard- (15% of total).

    3. FXH - Smart ETF of the Health care sector by FirstTrust- (20% of total).

    4. PJP - Smart ETF of the Pharma sub-sector by Powershares- (20% of total).

    5. XPH - Smart ETF of the Pharma sub-sector by SPDR- (10% of total).

    6. XBI - General tracking ETF of the Bio-technology sub-sector by SPDR - (10% of total).

    7. PBE - Smart ETF of the Bio-technology sub-sector by Powershares- (10% of total).

    These are my 3 preferred ETF's to invest in the Health care sector:

    Health Care Select Sector SPDR (XLV)

    This ETF owns the 54 healthcare companies in the S&P 500, weighted according to market cap. The 10 top holdings weight 54.77% and the currently top holding is Johnson & Johnson (NYSE:JNJ) accounting for 11.56% of its holdings.

    The ETF include firms focused on drugs (both Big Pharma and biotech), healthcare equipment and supplies, hospitals, medical devices, and health insurers. Big Pharma firms comprise almost 51% of the fund's assets.

    XLV has an expense ratio of 0.18%, that's makes it one of the cheapest healthcare sector ETFs available.

    Fund total net assets: 9.8$ billion, Inception date - 1998

    The fund has a year-to-date return of 4.94%, a one-year return of 32.14%, a three-year return of 92.00% and a five-year return of 169.88%.

    Vanguard Health Care ETF (VHT)

    This ETF owns 297 healthcare companies. The 10 top holdings weight 45.50% and the currently top holding is Johnson & Johnson accounting for 9.58% of its holdings.

    The ETF Seeks to track the performance of a benchmark index that measures the investment return of stocks in the health care sector, it's Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate. VHT Includes stocks of companies involved in providing medical or health care products, services, technology, or equipment.

    VHT has an expense ratio of 0.14%, which is 90% lower than the average expense ratio of funds with similar holdings.

    Fund total net assets: 3.4$ billion, Inception date - 2004

    The fund has a year-to-date return of 5.88%, a one-year return of 34.40%, a three-year return of 93.41% and a five-year return of 185.41%.

    The main difference between VHT to XLV, is that in VHT, about 48% of the companies are Giant cap, 32% of the companies are Large cap, 12% of the companies are Medium cap, and 8% are small and micro cap companies. Unlike the XLV, there is about 58% of the companies are Giant cap, 38% of the companies are Large cap and there are no Small and Micro cap companies at all.

    First Trust Health Care AlphaDEX ETF(NYSEARCA:FXH)

    This ETF owns the 73 healthcare companies in the S&P 500. The 10 top holdings weight only 24.55% and the currently top holding is Illumina, Inc (NASDAQ:ILMN) accounting for only 3.17% of its holdings.

    FXH has an expense ratio of 0.71%, not cheap but in the long term worth the money.

    Fund total net assets: 1.9$ billion, Inception date - 2007

    The fund has a year-to-date return of 7.24%, a one-year return of 38.55%, a three-year return of 91.96% and a five-year return of 287.18%.

    FXH is a smart and active ETF on the healthcare sector, unlike the two other ETF's i mentioned above. Only about 14% of the companies are Giant cap, 38% of the companies are Large cap, 40% of the companies are Medium cap, and 8% are small and micro cap companies.

    (click to enlarge)

    In conclusion: We may be received a convenient entry point for investment in the sector. What probably sparked sharp falls in the Bio-technology sector at the last two weeks (almost 15% from 25.02.14), was a letter from three U.S. congressmen, members of the Energy and Commerce Committee to Giliad Science CEO (NASDAQ:GILD). The letter expressed concern from the high price of the hepatitis C drug of the company, and noted "that there is no absent proof that Sovaldi (the drug in question) is a breakthrough drug."

    The sector is now more vulnerable after his strong rally in the past few years, and the stock prices are above historical averages. May be we will see pressure on the sector for a few days so be carful with the timing.

    In the next articles I will review the best ETFs in my opinion, for my favorite sub-sectors, the Pharmaceutical and biotech.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: etf-analysis Stocks: FXH, VHT, XLV
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