Under The Hood: Emerging Markets Health Care
ETFs tracking the health care have held reasonably well in the face of extreme market volatility recently, providing some modicum of defense as investors fretted over international macroeconomic issues. Take a look at most of the popular health care ETFs, the SPDR Select Sector Health Care (NYSE: XLV) being a prime example, and you'll find Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK) and Pfizer (NYSE: PFEZ) among the top holdings.
That's good for playing defense, but not so good for getting exposure to growth and putting some excitement in a portfolio. For those looking to break free from the shackles of boredom when it comes to health care ETFs, the newly minted EGShares Health Care GEMS ETF (NYSE: HGEM) is worth a look.
HGEM was part of the new suite of emerging markets sector funds introduced by Emerging Global Shares earlier this year. While emerging markets health care may sound a bit more speculative than the U.S. equivalent, HGEM tracks the Dow Jones Emerging Markets Health Care Index, which is home to the 30 largest health care-related companies in the emerging universe.
The 30-stock ETF made its debut in late June and has thus far accumulated just under $840,000 in assets under management. The average market cap of HGEM's holdings is over $4.1 billion, so this is not a small-cap play.
Most HGEM's holdings are not U.S.-listed, but investors may be familiar with Mindray Medical (NYSE: MR) and Dr. Reddy's Laboratories (NYSE: RDY).
Investors should also note that biotech, medical equipment and medical supplies are barely represented in HGEM as the ETF devotes over 88% of its weight to pharma names and health care providers. At the country level, India, South Africa and China account for 80% of the fund's weight. Hungary and Indonesia round out the top-five country weights.
The biggest knock on HGEM isn't the expense ratio of 0.85%. It's the substantial lag in performance relative to XLV over the past three months. Then again, that may indicate HGEM is poised to surge if emerging markets are embraced again.
