A smart beta exchange traded fund, the SPDR S&P Health Care Equipment ETF (XHE) debuted on 01/26/2011, and offers broad exposure to the Health Care ETFs category of the U.S. equity market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Because the fund has amassed over $259.84 M, this makes it the largest ETF in the Health Care ETFs. XHE is managed by State Street Global Advisors. This particular fund, before fees and expenses, seeks to match the performance of the S&P Health Care Equipment Select Industry Index.
This Index represents the health care equipment and supplies sector of the S&P Total Market Index. The Index is one of nineteen S&P Select Industry Indices, each designed to measure the performance of a narrow sub-industry or group of sub-industries as defined by the GICS.The Health Care Index is a modified equal weight index.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
With the least expensive product in the space, this ETF has annual operating expenses of 0.35%.
XHE's 12-month trailing dividend yield is 0.02%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Healthcare sector - about 100% of the portfolio.
Looking at individual holdings, Inogen Inc. (INGN) accounts for about 2.29% of total assets, followed by Dexcom Inc. (DXCM) and Quidel Corporation (QDEL).
Its top 10 holdings account for approximately 18.93% of XHE's total assets under management.
Performance and Risk
XHE has added roughly 15.28% so far this year, and as of 05/16/2018, is up about 29.47% in the last one year. In the past 52-week period, the fund has traded between $56.42 and $74.71.
The fund has a beta of 0.87 and standard deviation of 16.53% for the trailing three-year period, which makes XHE a medium choice in this particular space. With about 71 holdings, it effectively diversifies company-specific risk.
SPDR S&P Health Care Equipment ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares U.S. Medical Devices ETF (IHI) tracks Dow Jones U.S. Select Medical Equipment Index. The fund has $1.80 B in assets. IHI has an expense ratio of 0.44%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center .