Healthcare has become a dominant investing theme over the past year. The U.S. spends more than 16% of its gross domestic product (GDP) on healthcare — more than any other nation. It has also been among the leading countries when it comes to developing vaccines and therapies against the novel coronavirus.
In the past year, as citizens put their faith in science, investors likewise allocated a portion of their funds into healthcare stocks and exchange-traded funds (ETFs). Therefore, today I’ll introduce seven health-focused ETFs that could appeal to a range of InvestorPlace readers.
The industry covers major pharmaceutical companies, high-growth biotechnology firms, equipment designers and manufacturers, telehealth firms, healthcare providers, medical insurers as well as hospitals. Of course, the pandemic has affected these various segments of the industry in different ways.
Just listen to this report from Deloitte:
“The COVID-19 pandemic is placing enormous strain on the global health care sector’s workforce, infrastructure, and supply chain, and exposing social inequities in health and care. COVID-19 is also accelerating change across the ecosystem and forcing public and private health systems to adapt and innovate in a short period.”
Despite the enormous challenges of the past year 12 months, positive vaccine rollout efforts have significantly improved the outlook for a return to pre-Covid-19 days, Meanwhile, long-term portfolios have enjoyed significant gains in many healthcare stocks. Year-to-date (YTD), the Dow Jones U.S. Health Care Index is up over 22%.
With that information, here are 7 health-focused ETFs to buy now:
- ALPS Medical Breakthroughs ETF (NYSEARCA:SBIO)
- ARK Genomic Revolution ETF (BATS:ARKG)
- ETFMG Treatments, Testing and Advancements ETF (NYSEARCA:GERM)
- Health Care Select Sector SPDR Fund (NYSEARCA:XLV)
- Invesco S&P 500 Equal Weight Health Care ETF (NYSEARCA:RYH)
- iShares Nasdaq Biotechnology ETF (NASDAQ:IBB)
- iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF)
ETFs with a thematic concentration can make investing less complicated for many individuals. Vikas Agarwal of Georgia State University suggests that ETFs can provide “increased access to asset classes and markets, as well as, improved tax efficiency, liquidity, price discovery, and transparency.” When investors buy a healthcare fund, they do not have to constantly monitor the fast-paced pipeline as well as financial metrics of each business.
Health-Focused ETFs to Buy: ALPS Medical Breakthroughs ETF (SBIO)
52-Week Range: $36.00 – $64.04
YTD Price Change: Down ~ 2%
Dividend Yield: N/A
Expense Ratio: 0.50% per year
The ALPS Medical Breakthroughs ETF invests in small- and mid-capitalization (cap) biotechnology and pharmaceutical firms with market caps ranging between $200 million and $5 billion. These companies also have at least one drug in either Phase II or Phase III of the U.S. Food and Drug (FDA) Administration clinical trials, which are studies done in people.
You might already know that “Clinical trials of drugs are usually described based on their phase. The FDA typically requires Phase I, II, and III trials to be conducted to determine if the drug can be approved for use.”
SBIO, which has 105 holdings, tracks the S-Network Medical Breakthroughs Index. The fund began trading in December 2014. The top 10 stocks comprise about 30% of net assets of $247 million. Fate Therapeutics (NASDAQ:FATE), Vir Biotechnology (NASDAQ:VIR), Emergent Biosolutions (NYSE:EBS), Arena Pharmaceuticals (NASDAQ:ARNA) and Legend Biotech (NASDAQ:LEGN) are among the leading names in the fund.
In the past 12 months, the ETF is up 27% and saw an all-time high in February. But over the last two months, SBIO has lost about 20% of its value, making it a buy for those who can stomach a little volatility: the fund has a niche focus on high risk, high return biotechnology firms.
ARK Genomic Revolution ETF (ARKG)
52-Week Range: $38.85 – $115.15
YTD Price Change: Down ~ 1.5%
Dividend Yield: N/A
Expense Ratio: 0.75% per year
From biotechnology, we move on to genomic medicine: “the study of our genes (DNA) and their interaction with our health. Genomics investigates how a person’s biological information can be used to improve their clinical care and health outcomes (eg through effective diagnosis and personalised treatment.”
The ARK Genomic Revolution ETF is one of the funds managed by Catherine Wood, CEO and Chief Investment Officer (CIO) of Ark Invest. The fund invests in businesses in genomics-related industries. In terms of sectoral breakdown, 97% of companies come from healthcare, followed by information technology (IT).
Since its inception in October 2014, net assets have reached $9.5 billion. ARKG currently has 60 holdings; the top 10 names comprise over 40% of the ETF. Among the leading names are Teladoc Health (NYSE:TDOC), Exact Sciences (NASDAQ:EXAS), Pacific Biosciences of California (NASDAQ:PACB) and Regeneron Pharmaceuticals (NASDAQ:REGN).
In the past 12 months, ARKG returned over 118% and saw a record high in early February. Since then, profit-taking has put pressure on the fund. Interested investors could consider buying around these levels.
ETFMG Treatments, Testing and Advancements ETF (GERM)
52-Week Range: $23.80 – $44.69
YTD Price Change: Up ~ 25%
Dividend Yield: N/A
Expense Ratio: 0.68% per year
The ETFMG Treatments, Testing and Advancements ETF comprises biopharma companies developing vaccines, cures and diagnostic technology against infectious diseases. Because of the novel coronavirus, we’ve all been focusing on the effects of Covid-19. However, even in the past several decades alone. there have been numerous American epidemics, “when an infectious disease has spread rapidly through a community.”
GERM started trading in June 2020 and assets under management currently stand at $60 million. In other words, this is a small, young fund. It currently has 77 stocks and the top 10 names comprise close to 55% of the fund. BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA), Bio Rad Laboratories (NYSE:BIO) and Laboratory Corporation of America (NYSE:LH) are among the top names in the roster.
The fund hit a record high in early February. Since inception, GERM has been a strong addition to portfolios. Given the importance of cures against vaccines, this thematic ETF could appeal to a range of market participants.
Health Care Select Sector SPDR Fund (XLV)
52-Week Range: $95.42 – $123.96
YTD Price Change: Up ~ 8%
Dividend Yield: 1.7%
Expense Ratio: 0.12% per year
Our next choice is the Health Care Select Sector SPDR Fund. It provides exposure to biopharma firms as well as those that provide healthcare equipment and services. Main holdings are large caps from the S&P 500 index. They mostly have strong balance sheets, are innovative and typically well-managed. Since its inception in December 1998, assets under management have grown to $26.2 billion.
XLV currently has 62 holdings where the leading 10 names make up over 45% of the fund. In other words, it is a top-heavy fund. Abbvie (NYSE:ABBV), Merck (NYSE:MRK), Thermo Fisher Scientific (NYSE:TMO), Medtronic (NYSE:MEDT) and Danaher (NYSE:DHR) have currently the top slices in the ETF. The sector allocation is divided into Pharmaceuticals (28.27%), Healthcare Equipment & Supplies (27.66%), Healthcare Providers & Services (20.89%), Biotechnology (13.95%) and others.
Over the past 12 months, XLV has returned around 20% and hit a record high in April. The fund’s trailing P/E and P/B ratios stand at 17.33 and 5.03, respectively. Given the rapid increase in price, interested investors might wait for a potential decline toward the $115 level or even below.
Invesco S&P 500 Equal Weight Health Care ETF (RYH)
52-Week Range: $206.70 – $286.08
YTD Price Change: Up ~ 9%
Dividend Yield: 0.5%
Expense Ratio: 0.40% per year
The Invesco S&P 500 Equal Weight Health Care ETF invests in a range of U.S. healthcare stocks. The fund tracks the S&P 500 Equal Weight Health Care Index, which equally weights stocks in the healthcare sector of the S&P 500 index. Both the index and the fund are rebalanced quarterly.
RYH, which started trading in November 2006, currently has 63 holdings. The top ten firms make up less than 18% of net assets under management, currently $820 million. Put another way, no single stock’s weighting is large enough to affect the fund by itself. IQVIA Holdings (NYSE:IQV), Mettler-Toledo International (NYSE:MTD) and Intuitive Surgical (NASDAQ:ISRG) are among the leading names in the fund.
As far as sectors are concerned, Health Care Equipment & Supplies (50.32%), Pharmaceuticals (19.16) and Health Care Providers & Services (16.98%) have the highest weighting. Over the past 52 weeks, RYH has returned 31% and hit an all-time high in late April. The fund’s forward P/E and P/B ratios are 17.09 and 3.89.
This ETF could be appropriate for readers looking for diversified exposure to U.S.-based healthcare businesses. A potential decline toward $270 would make the fund more attractive for buy-and-hold investors.
iShares Nasdaq Biotechnology ETF (IBB)
52-Week Range: $119.65 – $174.04
YTD Price Change: Up ~ 4%
Dividend Yield: 0.3%
Expense Ratio: 0.46% per year
Launched in February 2001, the iShares Nasdaq Biotechnology ETF invests in U.S. biotechnology and pharmaceutical companies. Readers should note that on June 21, the fund’s name will change to iShares Biotechnology ETF.
IBB currently has 279 stocks. Its five largest holdings are Amgen (NASDAQ:AMGN), Gilead Sciences (NASDAQ:GILD), Moderna, Illumina (NASDAQ:ILMN) and Vertex Pharmaceuticals (NASDAQ:VRTX). The leading 10 companies comprise about 45% of assets of $10.4 billion.
In the past year, the ETF increased by 23% and hit a record-high in February. Trailing P/E and P/B ratios are 18.44 and 5.96. Since then, short-term profit-taking has kicked in.
Interested long-term investors could consider buying around $150. Most of the names in the fund have strong pipelines and are likely to innovate and create shareholder value in the foreseeable future. Cutting-edge developments in biotechnology and medical sciences should be key drivers of growth for the fund.
iShares U.S. Healthcare Providers ETF (IHF)
52-Week Range: $180.98 – $265.23
YTD Price Change: Up ~ 12%
Dividend Yield: 1.4%
Expense Ratio: 0.42% per year
Our final fund is the iShares U.S. Healthcare Providers ETF, which invests in health insurance, diagnostics and specialized treatment firms. The fund started trading in May 2006 and has close to $1.2 billion under management.
IHF, which tracks the Dow Jones U.S. Select Healthcare Providers index, currently has 59 holdings. Top ten names constitute about 70% of the fund. Among the leading stocks are UnitedHealth (NYSE:UNH), CVS Health (NYSE:CVS), Cigna (NYSE:CI), Anthem (NYSE:ANTM) and Humana (NYSE:HUM). The sectoral breakdown (by weighting) is Managed Healthcare (41.13%), Health Care Services (38.33%) and Health Care Facilities (11.76%).
In the past year, IHF increased by 35% and saw a record high in April. Investors with a two- to three-year horizon may want to watch the $250 level or below as a better entry point.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
