Three of the Top Healthcare ETFs to Watch

After slumping in 2016, the health care sector looks to have been resuscitated in 2017. The S&P Healthcare Sector Index for example is up 21% in the first 10 months of the year, as compared to just 14% for the S&P 500.

The Health Care Select Sector (XLV) ETF is up 22%.

In fact, at just $83 a share, I can own XLV and a piece of Johnson & Johnson (JNJ), Pfizer (PFE), Merck (MRK), AbbVie (ABBV), Amgen (AMGN), Celgene (CELG), Bristol Myers (BMY), and 55 other healthcare names. 

Just to own the ones we noted would cost $1,082. 

And that’s just for one share of each.


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Better yet, since the affordable healthcare bill began in 2010, the XLV has soared from $25 to $83.  That means I could have bought 100 shares at $2,500 and watched it explode to $8,300. Or, I could have bought 100 shares those same seven stocks mentioned and pay nearly $18,700. 

In this case, not only would the ETF lower by cost, it also allows me to diversify among several big names in the sector.

Granted, healthcare did take a hit in early October 2017 after President Trump pledged to cut off subsidies to insurance companies, and noted that drug makers were “getting away with murder.” 

But here’s what we need to remember. Healthcare is one of the strongest sectors on the market.  Earnings growth in the sector is likely to stay strong, long-term.  And the sector has historically had a higher and much more stable return on equity than the broader market. Plus, the sector is likely to benefit as populations continue to age.

It’s not as if we can stop aging (not yet, anyway). And if you're concerned that drug pricing could come under political fire, remember that global demand will continue to grow as well for healthcare companies. Pfizer, for example, generates about 50% of its revenues from overseas operations.

Here are some of the most watched healthcare names as of October 2017.

Health Care Select Sector SPDR Fund (XLV)
Expense Ratio: 0.14%
Assets under management: $17.9 billion

XLV tracks healthcare stocks in the S&P 500.  It seeks to provide exposure to pharmaceuticals, health care equipment and supplies, providers and services, biotech, life sciences and healthcare technology services.

Vanguard Health Care ETF (VHT)
Expense ratio: 0.10%
Assets under management: $7.15 billion

VHT hold 344 stocks and tracks the MSCI US Investable Market Health Care 25/50 Investable Index with positions in s healthcare stocks -- pharmaceuticals, biotech, medical equipment, software and IT.  It also holds Johnson & Johnson, Pfizer, United Health Group, Merck, Celgene, Medtronic, Eli Lilly & Co., Aetna, Anthem, and several other big names in the sector.

SPDR S&P Biotech ETF (XBI)
Expense ratio: 0.35%
Assets under management: $4.2 billion

The Fund seeks to replicate the performance of biotechnology companies, including Amgen, Alnylam Pharmaceuticals, Incyte Corporation, Biogen, and Vertex Pharmaceuticals to name a few. The Fund uses a passive management strategy designed to track the total return performance of the S&P Biotechnology Select Industry Index.

With an aging global population and very high demand for care, health care is one of the safer bets in any market climate.

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