ETF Digest | Jun 20, 2012 12:25AM ET
The Health Care sector as a more defensive sector overall remains a positive holding in 2012 despite volatility in overall markets. Nevertheless, uncertainties surrounding government health care changes and mandates remain a drag as do patent expirations is some key drugs. There is a lot to choose from in terms of indexes linked to ETFs. Some indexes are passive and duplicative relatively while some are “enhanced” making them quasi-active. The latter apply quantitative analytical techniques and skills to provide outperformance. Investors should note that in a rising market particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues. I’ve not done enough analysis to determine their relative performance during down market periods.
New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.
There is currently an expanding list of 24 ETFs oriented to the healthcare sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.
ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called “enhanced” indexes that attempt to achieve better performance through more active management of the index.
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
As of June 2012 the annual dividend yield was 0.62% and YTD return 12.55%. The one year return was 23.16% demonstrating the higher volatility with enhanced indexes.
Data as of June 2012
PJP Top Ten Holdings
· Gilead Sciences Inc (GILD): 5.47%
· Abbott Laboratories (ABT): 5.21%
· Pfizer Inc (PFE): 5.15%
· Eli Lilly and Company (LLY): 5.04%
· Amgen Inc (AMGN): 4.99%
· Merck & Co Inc (MRK): 4.89%
· Bristol-Myers Squibb Company (BMY): 4.87%
· Johnson & Johnson (JNJ): 4.80%
· Warner Chilcott PLC Class A (WCRX): 3.46%
· Watson Pharmaceuticals Inc. (WPI): 3.36%
AUM equal $538M with average daily trading volume around 86K shares As of June 2012 the annual dividend yield was yield 2.07% with YTD performance 5.15%. The one year return was 5.00%.
Data as of June 2012
IXJ Top Ten Holdings
· Johnson & Johnson (JNJ): 7.64%
· Pfizer Inc (PFE): 7.35%
· Novartis AG (NVSEF): 6.35%
· Merck & Co Inc (MRK): 5.10%
· GlaxoSmithKline PLC (GLAXF): 4.98%
· Roche Holding AG (RHHVF): 4.89%
· Abbott Laboratories (ABT): 4.33%
· Sanofi (SAN): 3.51%
· UnitedHealth Group Inc (UNH): 2.59%
· Novo Nordisk A/S (NONOF): 2.51%
The one year return was -0.80%. The two distinguishing YTD performance versus the one year return reflects more volatility in the index.
Data as of June 2012
IHI Top Ten Holdings
· Medtronic, Inc. (MDT): 10.90%
· Covidien PLC (COV): 8.64%
· Intuitive Surgical, Inc. (ISRG): 7.67%
· Thermo Fisher Scientific Inc (TMO): 7.06%
· Stryker Corporation (SYK): 6.29%
· St Jude Medical, Inc. (STJ): 5.45%
· Zimmer Holdings Inc (ZMH): 5.20%
· Boston Scientific, Inc. (BSX): 4.44%
· Waters Corporation (WAT): 3.86%
· Varian Medical Systems, Inc. (VAR): 3.65%
The one year return was 19.18% once again indicating higher volatility within this sector and a flight to a more defensive sector during 2011 chaotic market conditions.
Data as of June 2012
IHE Top Ten Holdings
· Pfizer Inc (PFE): 9.28%
· Johnson & Johnson (JNJ): 9.04%
· Merck & Co Inc (MRK): 7.92%
· Abbott Laboratories (ABT): 7.64%
· Bristol-Myers Squibb Company (BMY): 6.04%
· Eli Lilly and Company (LLY): 5.34%
· Allergan, Inc. (AGN): 4.41%
· Watson Pharmaceuticals Inc. (WPI): 3.48%
· Forest Laboratories, Inc. (FRX): 3.17%
· Mylan Inc (MYL): 3.07%
AUM equal $543M and average daily trading volume is 181K shares. As of June 2012 the annual dividend yield was 0.11% and YTD return 11.14%. The one year return was 3.71%.
Data as of June 2012
FXH Top Ten Holdings
· Catalyst Health Solutions, Inc. (CHSI): 3.20%
· SXC Health Solutions Corporation (SXCI): 2.85%
· Community Health Systems Inc (CYH): 2.58%
· Intuitive Surgical, Inc. (ISRG): 2.52%
· Boston Scientific, Inc. (BSX): 2.47%
· Eli Lilly and Company (LLY): 2.43%
· Forest Laboratories, Inc. (FRX): 2.37%
· LifePoint Hospitals, Inc. (LPNT): 2.34%
· Alexion Pharmaceuticals, Inc. (ALXN): 2.30%
· Regeneron Pharmaceuticals, Inc. (REGN): 2.19%
AUM equal $441M and average daily trading volume is 112K shares. As of June 2012 the annual dividend yield was 0.86% and YTD return 11.18%. The one year return was 17.13%.
Data as of June 2012
XPH Top Ten Holdings
· Vivus (VVUS): 4.95%
· Watson Pharmaceuticals Inc. (WPI): 4.93%
· Questcor Pharmaceuticals, Inc. (QCOR): 4.77%
· Warner Chilcott PLC Class A (WCRX): 4.67%
· Abbott Laboratories (ABT): 4.40%
· Salix Pharmaceuticals, Ltd. (SLXP): 4.34%
· Forest Laboratories, Inc. (FRX): 4.32%
· Eli Lilly and Company (LLY): 4.27%
· Pfizer Inc (PFE): 4.20%
· Bristol-Myers Squibb Company (BMY): 4.18%
As of June 2012 the annual dividend yield was yield 0.12% with YTD performance 7.48%. The one year return was -0.45%.
Data as of June 2012
IHF Top Ten Holdings
· UnitedHealth Group Inc (UNH): 13.73%
· Express Scripts (ESRX): 13.33%
· WellPoint Inc (WLP): 7.64%
· Aetna Inc (AET): 5.28%
· Cigna Corp (CI): 4.86%
· Humana (HUM): 4.66%
· Quest Diagnostics Inc (DGX): 3.84%
· Laboratory Corporation of America Holdings (LH): 3.58%
· DaVita Inc (DVA): 3.36%
· HCA Holdings Inc (HCA): 2.38%
As of June 2012 the annual dividend yield was yield 1.14% with YTD performance 8.36%. The one year return was 8.71%
Data as of June 2012
IYH Top Ten Holdings
· Johnson & Johnson (JNJ): 11.19%
· Pfizer Inc (PFE): 11.02%
· Merck & Co Inc (MRK): 7.57%
· Abbott Laboratories (ABT): 6.30%
· Amgen Inc (AMGN): 3.99%
· UnitedHealth Group Inc (UNH): 3.93%
· Bristol-Myers Squibb Company (BMY): 3.75%
· Express Scripts (ESRX): 2.74%
· Eli Lilly and Company (LLY): 2.64%
· Medtronic, Inc. (MDT): 2.56%
As of June 2012 the annual dividend yield was 1.58% with YTD performance 9.36%. The one year return was 9.02%. VHT trades commission free at Vanguard.
Data as of June 2012
VHT Top Ten Holdings
· Pfizer Inc (PFE): 9.86%
· Merck & Co Inc (MRK): 6.63%
· Abbott Laboratories (ABT): 5.41%
· UnitedHealth Group Inc (UNH): 3.56%
· Bristol-Myers Squibb Company (BMY): 3.24%
· Amgen Inc (AMGN): 3.06%
· Eli Lilly and Company (LLY): 2.38%
· Medtronic, Inc. (MDT): 2.34%
· Gilead Sciences Inc (GILD): 2.08%
XLV follows the Health Care Select Sector Index. The fund was launched in December 1998. The expense ratio is 0.18%. Assets under Management (AUM) equal $4B and average daily trading volume is over 6M shares. As of June 2012 the annual dividend yield was yield 1.44% with YTD performance 6.83%. The one year return was 8.00%.
Data as of June 2012
XLV Top Ten Holdings
· Johnson & Johnson (JNJ): 12.27%
· Pfizer Inc (PFE): 11.80%
· Merck & Co Inc (MRK): 8.19%
· Abbott Laboratories (ABT): 5.89%
· UnitedHealth Group Inc (UNH): 4.21%
· Bristol-Myers Squibb Company (BMY): 4.05%
· Amgen Inc (AMGN): 3.94%
· Express Scripts (ESRX): 3.14%
· Eli Lilly and Company (LLY): 2.99%
· Medtronic, Inc. (MDT): 2.76%
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity
Established linked index even if “enhanced”
Good performance or more volatile if “enhanced” index
Average to higher fee structure
Good portfolio suitability or more active management if “enhanced” index
Decent liquidity
Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity
Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average
It’s essential to remember it’s really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always ignore their interests and align your choices with what serves your objectives best.
Disclosure: Author has no current positions in the featured securities.
Source for data is from ETF sponsors and various ETF data providers.
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