The Healthcare sector has continued its streak of outperformance
in 2014 as well. While the broader market index, S&P 500, saw a
poor start, closing January with three straight weekly losses, the
health care sector took the second best performing spot.
Higher merger and acquisition activities, new drug launches, an
aging population and increasing healthcare spending are the major
factors benefiting this sector.
Moreover, the Affordable Care Act (popularly labeled 'Obamacare')
is also expected to be highly beneficial for this sector. The Act
is expected to boost the number of insured Americans across the
More Americans will now be able to afford medicines, which could
enhance the sales potential of the drug companies and bode well for
the healthcare industry on the whole (read:
Obamacare Will Be Amazing for These Stocks and
With most of the S&P 500 companies having reported their fourth
quarter 2013 earnings, the Healthcare sector has emerged as one of
the best performing this season.
The yardstick for this success was the most number of companies
beating earnings estimates within a sector. Around
of Healthcare companies have reported earnings above estimates.
Given these positive trends, a look at some of the top ranked ETFs
in the space could be the way to target the best of the segment
with lower levels of risk (see:
all the Healthcare ETFs here
Top Ranked Healthcare ETF in Focus
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box or asset class (read:
Zacks ETF Rank Guide
). Our proprietary methodology also takes into account the risk
preferences of investors as well.
The aim of our models is to select the best ETFs within each risk
category. We assign each ETF one of five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio
in the Healthcare equities space, we have taken a closer look at
the top ranked XHS. This ETF has a Zacks ETF Rank of 2 or 'Buy'
the Top Ranked ETFs
) and is detailed below.
SPDR S&P Health Care Services ETF
Launched in September 2011, the fund tracks the S&P Health Care
Services Select Industry Index, holding a small bunch of 52 stocks
in its basket. The index is a modified equal weight benchmark and
seeks to provide exposure to U.S. healthcare stocks.
The product is well diversified as far as individual holdings are
concerned, as none of the stocks form more than 3% of the total
fund holdings. BioScrip Inc. (2.88%), Health Net Inc. (2.56%) and
Tenet Healthcare Corporation (2.52%) are the top three holdings of
As far as sector allocation is concerned, Health Care Services
occupy the top spot, holding around one-third of the fund assets.
This is followed by Health Care Facilities (27.95%), Managed Health
Care (22.53%) and Health Care Distributors (16.27%).
With an allocation of over 33% to hospitals and health care service
providers, XHS is expected to be one of the ETFs greatly benefiting
from Obamacare. Thanks to the Affordable Care Act, more and more
people are now expected to have the insurance to visit hospitals
for procedures. The hospitals will stand to benefit as unlike the
past these will no longer be providing a lot of services for free.
The fund is a little unpopular in its space, with an asset base of
$68.3 million and light volumes of just 5,389 shares a day. The
fund charges 35 basis points as fees to investors (read:
3 Top Ranked Healthcare ETFs in Focus
XHS returned a robust 34.66% in 2013 and also pays a dividend of
0.46%, and we are looking for more solid trading out of this fund
in 2014 as well.
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BIOSCRIP INC (BIOS): Free Stock Analysis Report
HEALTH NET INC (HNT): Free Stock Analysis
TENET HEALTH (THC): Free Stock Analysis Report
SPDR-SP HLTH CR (XHS): ETF Research Reports
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