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Market Overview

Heaps Of Healthy Health Care ETFs

Heaps Of Healthy Health Care ETFs

For the moment, the health care sector is the second-largest sector in the S&P 500, well behind technology and just ahead of financial services. That stature is reflected in the world of exchange-traded funds where close to 50 funds provided investors with dedicated health care exposure.

After slumping last year, the health care sector is rebounding in a big way this year. For example, the S&P Health Care Select Sector Index, a widely followed gauge of large-cap health care names, is up more than 18 percent year to date.

“With reduced overhangs and improving fundamentals, CFRA thinks investors are in need of a check up on the weight of health care equities in their portfolios,” said CFRA Research director of ETF & mutual fund research Todd Rosenbluth in a note published last month. “We upgraded our recommended health care sector exposure to Overweight, from Market Weight. The sector joins industrials and materials as our favored sectors in a well-diversified US equity portfolio.”

What follows is a broad overview of some of the most well-known health care ETFs on the market as well as some that have “hidden gem” status.

Traditional Cap-Weighted Health Care ETFs

The Health Care Select Sector SPDR (NYSE: XLV) is the largest health care ETF by assets and the most heavily traded. XLV tracks the aforementioned Health Care Select Sector Index, meaning the ETF is a gauge of many of the most familiar, largest health care names.

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The ETF's 64 holdings have a weighted average market value of $124.1 billion. Top 10 holdings in XLV include Dow components Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE) and Merck & Co., Inc. (NYSE: MRK). The ETF allocates almost 56 percent of its combined weight to pharmaceuticals and biotechnology stocks.

Similar compositions are found in rival cap-weighted health care ETFs, such as the Vanguard Health Care ETF (NYSE: VHT) and the Fidelity MSCI Health Care Index ETF (NYSE: FHLC). While FHLC and VHT appear similar to XLV, these are the two cheapest health care ETFs on the market and both funds feature significantly larger lineups than XLV, meaning increased exposure to smaller health care names.

Biotechnology Bounce

Biotechnology stocks were a big reason why the health care sector disappointed last year, but that scenario has changed in a big way in 2017. Just look at the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ: IBB). IBB, the largest biotechnology ETF, is up more than 28 percent year to date.

IBB is a good idea for investors that want exposure to the largest biotechnology names, including the likes of Amgen, Inc. (NASDAQ: AMGN), Celgene Corporation (NASDAQ: CELG) and Biogen Inc (NASDAQ: BIIB).

Investors looking for a different, though still potentially rewarding biotechnology ETF can consider the equal-weight SPDR S&P Biotech (ETF) (NYSE: XBI). As an equal-weight biotech ETF, XBI's weight average market capitalization is just $16.3 billion, indicating that the ETF provides more exposure to the risk/reward proposition offered by some smaller biotechnology stocks.

The PowerShares Dynamic Biotech & Genome(ETF) (NYSE: PBE) is a smart beta biotech idea, focusing on traits such as price momentum, earnings momentum, quality, management action and value. PBE holds just 31 stocks.

Leveraged Health Care Ideas

As the universe of health care ETFs has grown, so has the number of leveraged funds tracking the sector. The Direxion Daily Healthcare Bull 3X Shares (NYSE: CURE) is the leader among leveraged health care ETFs. CURE looks to deliver triple the daily returns of the aforementioned Health Care Select Sector Index.

There also is not a shortage of leveraged biotechnology ETFs available to aggressive, risk-tolerant traders. Two of the most popular names among geared biotech ETFs include the Direxion Daily S&P Biotech Bull 3X Shares (NYSE: LABU) and its bearish cousin, the Direxion Daily S&P Biotech Bear 3X Shares (NYSE: LABD).

LABU looks to deliver triple the daily returns of the S&P Biotechnology Select Industry Index while LABD tries to generate triple the daily inverse returns of that benchmark.

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