Breaking Down ETFs With Different Healthcare Weightings

by: Gary Gordon

The weight of the healthcare sector in a given ETF can vary dramatically. In the S&P 500 SPDR Trust (NYSEARCA:SPY), healthcare accounts for about 12%. In contrast, First Trust Dividend (NYSEARCA:FDL) commits roughly 30% to the segment.

Naturally, there are specific sector and sub-sector funds that provide 100% exposure. There’s 100% healthcare for the broader S&P 500 SPDR Select Health Care (NYSEARCA:XLV). And for those who want to narrow in on a sub-segment like pharmaceuticals, they can get their prescription filled through a fund like PowerShares Dynamic Pharmaceuticals Portfolio (NYSEARCA:PJP).

Over the last 12 months, healthcare ETFs have been on a roll. And, in fact, I wondered if we might be looking at a set of circumstances in the financial markets where more exposure is better.

For instance, while the Nasdaq 100 is known for some of its biotech corporations, healthcare only comprises 10% of the market cap weight in PowerShares NASDAQ 100 (NASDAQ:QQQ). How did XLV, the 100% healthcare proxy, stack up against the info-tech heavy QQQ? Similarly, how might PowerShares Dynamic Large-Cap Value (NYSEARCA:PWV) - a fund with a 20% health weight that tracks an un-followed “dynamic” index - rate against a global fund with 100% weight in the iShares S&P Global Health Care Fund (NYSEARCA:IXJ)?

Granted, I won’t necessarily be drawing conclusions from “apples-to-apples” comparisons. More like apples to oranges. On the other hand, we certainly can examine stock funds on one-year performance and these candidates are all large-cap stock funds that trade on a U.S. exchange. (In other words, apples and oranges are round fruits that grow on trees.)

An Apple A Day Keeps The Doctor…
Health Weight YOY %
Biotech HOLDRs (NYSEARCA:BBH) 100.0% 18.2%
PowerShares Dynamic Pharmaceuticals (PJP) 100.0% 17.1%
First Trust Dividend (FDL) 29.5% 12.9%
WisdomTree Dividend Excluding Financials (NYSEARCA:DTN) 11.0% 12.3%
SPDR Select Health Care (XLV) 100.0% 9.3%
PowerShares NAASDAQ 100 (QQQ) 9.8% 9.1%
iShares S&P Global Health (IXJ) 100.0% 6.9%
iShares Medical Devices (NYSEARCA:IHI) 100.0% 5.4%
S&P 500 SPDR Trust (SPY) 12.5% 5.1%
PowerShares Dynamic Large Value (PWV) 20.0% 5.0%

At first blush, one might be quick to suggest that the more heathcare exposure, the better the year-over-year performance. After all, the dividend fund with the higher healthcare weighting out-hustled the dividend fund with the lower health care weighting. Moreover, three of the ”Top 5″ had 100% health weights.

Then again, circumstances may more accurately reflect the fact that ”pharma/biotech/drugs” has been one of the hottest sub-segments around. Absent the “meds,” one finds that dividend funds both outperformed the broader based SPDR Select Health Care (XLV). Furthermore, funds with far less healthcare exposure than the 20% in PowerShares Large Cap Value (PWV) registered stronger percentage performances.

I’m not looking to make game-changing observations by checking in on different sector weights. That said, it’s the pharmaceutical and biotech ETFs that have done most of the heavy lifting. What’s more, if you dig even deeper, assets with relatively moderate risk and high yield - dividends, REITs, partnerships, utilities - have been the true superstars in the 11/8/10-11/7/11 period.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.