Conservative investors and risk-takers alike have been
rewarded for owning U.S. health care stocks and
focusing on those names in recent years.
The data supports that assertion. A look at three major health
care ETFs, all of which do things a little bit differently, shows
significant out-performance of the S&P 500 over various time
For example, the Health Care Select SPDR (NYSE:
) is up
30.3 percent in the past five years compared to
12.3 percent for the S&P 500
Since December 2011 when it became a Market Vectors fund,
Market Vectors Pharmaceutical ETF is up almost 20 percent. The
iShares Nasdaq Biotechnology ETF (NASDAQ:
) has nearly doubled in the past five years.
Bottom line: Investors have done well when staying at home
with U.S. health care stocks, but that does not mean there are
not global opportunities worth considering. After all, some of
the biggest health care companies in the world are not U.S.
France's Sanofi (NYSE:
) and Israel's Teva Pharmaceuticals (NASDAQ:
) stand as just two examples.
Here is a look at some international developed market health
care ETFs to see if going global with this sector is a better
idea than staying domestic.
iShares S&P Global Healthcare Sector Index Fund (NYSE:
) One thing about the iShares S&P Global Healthcare Sector
Index Fund that is important to note is that it is a global fund
and that means U.S. stocks are included.
Actually, the U.S. might loom too large in IXJ (almost 60
percent of the ETF's weight), diminishing international exposure
in the process. Switzerland is the only other country to land a
double-digit allocation in IXJ.
Through the end of last year, IXJ's net asset value had gained
10 percent over the past three years and 4.3 percent over the
past five, two performance's that are better than ETF's
underlying index over the same times,
according to iShares data
. Obviously, that five-year run does not compare favorably with
XLV. In IXJ's favor, it is worth noting the $645 million ETF has
a beta of just 0.95 against the S&P 500.
iShares MSCI ACWI ex US Health Care Sector Index Fund (NYSE:
) To take the U.S. out of the health care equation, investors
have a few ETF options and one is the iShares MSCI ACWI ex US
Health Care Sector Index Fund.
Pharmaceuticals names account for 80 percent of this fund's
weight, leaving only token exposure to health care equipment
makers, services providers and biotechnology names.
It is hard to argue with AXHE's composition, though, as the
ETF has returned 36.6 percent since its July 2010. The problem
with AXHE is that this is the type of ETF naysayers love to hate.
It has less than $13.7 million in assets under management and
trades just 2,500 shares per day.
Focusing on those statistics could mean glossing over the fact
that plenty of AXHE's 68 holdings can be described as heavily
traded, such as Sanofi, Teva and AstraZeneca (NYSE:
). Heavy on developed markets, AXHE's
has slightly outperformed its index since
SPDR S&P International Health Care Sector ETF (NYSE:
) The SPDR S&P International Health Care Sector ETF is the
more senior member of the ex-U.S. health care ETF duo, having
debuted in July 2008. The $32.5 million fund has returned an
admirable 21.6 percent in the past two years.
While AXHE and IRY both focus heavily on non-U.S. large-cap
pharmaceuticals names, there are important differences between
the two. For example, IRY is home to 117 holdings compared to 68
for AXHE and the SPDR offering is slightly more expensive with an
annual expense ratio of 0.5 percent compared to 0.48 percent for
) and Novartis (NYSE:
) are the top two holdings in both ETFs, but that pair represents
over 25 percent of AXHE's weight while accounting for 22.4
percent of IRY's. IRY also features slightly smaller allocations
to pharmaceuticals at the sector level and to Switzerland at the
One thing investors might like about IRY over AXHE: A lower
beta. IRY's is
compared to 1.1 on AXHE.
For more on ETFs, click
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advice. All rights reserved.
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