The Health Care sector ranks eighth out of the ten sectors as detailed in our 3Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Health Care sector ranked sixth. It gets our Dangerous rating, which is based on an aggregation of ratings of 22 ETFs and 86 mutual funds in the Health Care sector as of July 12, 2017.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Health Care sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 363). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Health Care sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
Figure 1: ETFs with the Best & Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Saratoga Health Care and Biotechnology (SBHIX, SHPCX) and Live Oak Health Sciences Fund (LOGSX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
VanEck Vectors Pharmaceutical (NASDAQ:PPH) is the top-rated Health Care ETF and Fidelity Select Health Care Services Portfolio is the top-rated Health Care mutual fund. Both earn an Attractive rating.
BioShares Biotechnology Products (NASDAQ:BBP) is the worst rated Health Care ETF and Prudential Jennison Health Sciences A is the worst rated Health Care mutual fund. Both earn a Very Dangerous rating.
340 stocks of the 3000+ we cover are classified as Health Care stocks.
The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.
PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Analyzing each holding within funds is no small task. More of the biggest names in the financial industry are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.
Figures 3 and 4 show the rating landscape of all Health Care ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst ETFs
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds
Sources: New Constructs, LLC and company filings
Disclosure: David Trainer, Kenneth James and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.