Health Care ETFs Take Over Market Leadership Role

The market this year has been characterized by leadership in defensive sectors such as utilities that have been boosted by falling interest rates and conservatism in the late stages of this bull market. While the momentum in utilities has continued to prosper, a new sector has taken over the top leadership spot in this year’s sector rankings.

Health Care SPDR (ETF)

The Health Care SPDR (ETF) XLV experienced a drop along with the majority of the market in October. However, this ETF has shown tremendous relative strength since then, and has pushed its total return for 2014 in excess of 28 percent.

A look at the chart below shows XLV recently attaining a new all-time high after briefly touching its 200-day average just six weeks ago.

From a comparative standpoint, the broad-based SPDR S&P 500 ETF Trust SPY has gained 13.97 percent this year.

XLV, the largest and most well-known ETF in the health care sector, tracks 57 large-cap stocks engaged in pharmaceutical, biotechnology and medical services. Currently, this fund has over $12.8 billion in total assets and charges an expense ratio of 0.16 percent.

The largest holdings include Johnson & Johnson JNJ, Pfizer Inc. PFE and Merck & Co., Inc. MRK. Combined, these three mega-cap stocks represent more than 25 percent of the total XLV portfolio.

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SPDR S&P Biotech

The health care sector has continued to flourish in the wake of continued innovation in medical devices, biotechnology and essential services. The biotechnology sector in particular has been characterized by marked enthusiasm behind several mergers and acquisitions in 2014. In addition, the recent fears over an Ebola outbreak have highlighted the need for further spending in the health care arena.

The SPDR S&P Biotech (ETF) XBI tracks 84 stocks engaged in biotechnology research. This ETF has gained an impressive 38.66 percent this year as it continues to trade near all-time highs as well.

For now, the momentum appears to be working in favor of the health care sector and continued strength in the broad market will likely carry it even higher.