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3 Funds to Play the Healthcare Megatrend

Don't expect this red-hot sector to cool down much in the future

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SPDR Health Care Select Sector Fund

StateStreetSPDR185One of the most popular ways of playing the healthcare sector is the SPDR Health Care Select Sector Fund (XLV) — an exchange-traded fund that holds each of the S&P 500’s healthcare operators (right now, that number’s at 57).

The XLV is broken down into several industries — about half the fund is in pharmaceuticals, but it also has significant holdings in healthcare providers and equipment, biotech and even healthcare technology (companies that provide business-specific IT work, for instance). Thus, you have a diverse set of holdings that includes Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Medtronic (MDT), among others.

One thing to keep in mind, though: The fund is market-cap weighted, which means the largest companies hold more influence over the fund. For instance, one company alone — J&J — makes up more than 13% of XLV. Johnson & Johnson, Pfizer (PFE) and Merck (MRK) constitute 30% of the fund’s weight. That’s not necessarily bad, but it does mean XLV’s performance is heavily skewed by what just a few stocks do.

Past that, performance has been strong, returning 23% for the year and averaging 11.45% annually in the past five years, and XLV currently yields 1.7%.

Expenses are a low 0.18%, or $18 for every $10,000 invested.

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