With some help from the Federal Reserve, 2013 has been an
excellent year for U.S., but some sectors have shined brighter
And while it has been a good year for U.S. equities, the
backdrop has been far from sanguine. Tapering and rising interest
rates may be a thing of the past, at least for now, but those are
just two of the issues have had to contend with this year.
Through it all, health care ETFs, broadly speaking, have
proven resilient. "The sector, which represents about 13% of the
S&P 1500 Index, has increased 28.3% in 2013 through September
13 versus the 18.8% gain for the S&P 1500 and is the best
performing sector year to date," according to a new research note
by S&P Capital IQ.
Heaping Praise For Some Health Care ETFs
S&P Capital IQ notes that there are 10 sub-industries
within the health care sector and nine are outpacing the broader
market year-to-date. The "laggard" is health care equipment,
which is up "just" 17.1 percent this year. As
was previously highlighted
, health care equipment names could be vulnerable to an
oft-overlooked provision in Obamacare that introduced a new tax
on medical device makers.
Even with that, the iShares U.S. Medical Devices ETF (NYSE:
) is up almost 24 percent this year and touched a new 52-week
Biotechnology, managed care and pharmaceuticals stocks have
soared this year, helping some familiar
and overlooked health care ETFs
deliver stellar returns.
S&P Capital IQ has an Overweight rating on the Health Care
Select Sector SPDR (NYSE:
), the largest health care ETF by assets. With a 31.6%
year-to-date gain, XLV is the best performer among the nine SPDR
ETFs. The $7.6 billion fund's 56 holdings have a weighted average
market value of $93.7 billion, indicating a heavy bias toward
large-cap, blue-chip names.
That is exactly what investors get with XLV as Dow components
Johnson & Johnson (NYSE:
), Pfizer (NYSE:
) and Merck (NYSE:
) combine for 29.5 percent of the ETF's weight. Those three
stocks also represent the top-three holdings in the Vanguard
Health Care (NYSE:
), combining for 25.2 percent of that fund' weight.
VHT's 0.14 percent expense ratio is slightly below the 0.18
percent charged by XLV and enough to make the Vanguard offering
the cheapest health care ETF on the market. VHT has returned 32.7
percent year-to-date and is also rated Overweight by S&P
The pharmaceuticals sub-industry "has moved sideways over the
past several months, following a sharp rise in the first half of
the year that we see correlated to Treasury yields," said S&P
Capital IQ. "When Treasury yields were lower at the beginning of
the year, we believe income-focused investors were attracted to
the 3-4% dividend yields offered by big pharmaceutical
The iShares U.S. Healthcare ETF (NYSE:
) also earned an Overweight rating from S&P Capital IQ. Like
its rivals, IYH devotes a significant portion of its weight to
J&J, Pfizer and Merck. Those stocks combine for 27.5 percent
of IYH's weight, but also like its rivals, IYH features several
biotech names among its top-10 lineup and that has helped lift
the ETF to 32.4 percent gain this year.
Investors looking for some international sector exposure
without a significant uptick in volatility may want to consider
the iShares Global Healthcare ETF (NYSE:
). That ETF also garnered an Overweight rating from S&P
Capital IQ and the research firm
previously lauded the ETF for favorable risk
J&J is IXJ's largest holding, but with a weight of just
7.8 percent. Novartis (NYSE:
), GlaxoSmithKline (NYSE:
) and Sanofi (NYSE:
) are also found among IXJ's top-10 holdings. Foreign
pharmaceuticals names offer investors a bit more yield as IXJ has
a 30-day SEC yield that is more than 50 basis points higher than
IYH, but that added yield does not mean added volatility. IXJ has
three-year standard deviation of about 12 percent compared to
12.3 percent for IYH,
according to iShares data
For more on ETFs, click
Disclosure: Author is long JNJ.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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