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Three Soaring, But Overlooked Health Care ETFs

August 2, 2013 2:19 pm
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This has been an excellent year in which to be long the health care sector.

The Health Care Select Sector SPDR (NYSE: XLV) and the Vanguard Health Care ETF (NYSE: VHT) are up an average of 30.3 percent year-to-date and that is lousy compared to the 46.3 gain offered by the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB).

Biotechnology names have been stellar, so have blue-chip pharmaceuticals names such as Johnson & Johnson (NYSE: JNJ). Bolstering the sector's healthy outlook is the broad-based support coming sub-sectors such as medical devices, health insurance providers. Even small caps have gotten in on the act.

Related: Don't Forget About This Small-Cap Health Care ETF.

There are some health care ETFs that often go overlooked that merit investors' attention as well. Consider the following.

iShares U.S. Pharmaceuticals ETF (NYSE: IHE)
When an ETF has over $492 million in assets under management as does the iShares U.S. Pharmaceuticals ETF, calling it "overlooked" is somewhat of a stretch. However, pure play pharmaceuticals ETFs are not nearly as heralded as their more diverse peers such as XLV and VHT. Those ETFs also feature biotech and medical devices stocks.

IHE does not hold device makers, but some of its smaller holdings do qualify as biotech names. Just do not expect to find Amgen (NASDAQ: AMGN) and Gilead Sciences (NASDAQ: GILD) because IHE lives its up to its billing as a U.S.-focused pharma play. That is good news for the conservative, yet indecisive investors. Can't decide among J&J, Pfizer (NYSE: PFE) and friends?

No problem because those stocks, Merck (NYSE: MRK), Bristol-Myers (NYSE: BMY) and Abbott (NYSE: ABT) combine for 38 percent of IHE's weight. The ETF is up 28 percent this year.

First Trust Health Care AlphaDEX Fund (NYSE: FXH)
The First Trust Health Care AlphaDEX Fund might be one of the quietest $1 billion ETFs on the market. More importantly, FXH stands as an example of how investors can benefit from considering alternative weighting methodologies.

FXH offers broader exposure to biotechnology, health care providers and equipment makers as well pharmaceuticals names. That recipe is working as the fund is up 32.2 percent year-to-date, a performance that puts it ahead of XLV and VHT. So those that were bullish on FXH back in January when the ETF had less than $630 million in assets now look quite prescient.

Guggenheim S&P 500 Equal Weight Health Care ETF (NYSE: RYH)
Yes, equal weighting works at the sector level, too. The Guggenheim S&P 500 Equal Weight Health Care ETF is proof positive of that assertion with a year-to-date gain of nearly 29 percent.

RYH is an equal-weight alternative to funds such as XLV and VHT and the differences shine through at the sub-sector level. The Guggenheim offering is split almost evenly between health care equipment, providers and pharmaceuticals names. Stocks range in weight from 1.37 percent to 2.22 percent and the fund's three largest holdings are all biotechnology stocks.

For more on ETFs, click here.

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