Healthcare exchange traded funds have been the strongest sector performers so far this year with one ETF that invests in healthcare providers rallying 20%.

“Among the top year-to-date ETF performers, we see a heavy concentration in health care, with 14 of the 16 strongest returns coming from ETFs focusing on either the overall sector or a portion of the health care area,” says Thomas Graves, equity analyst at Standard & Poor’s Equity Research.

Health Care Select Sector SPDR Fund (NYSEArca: XLV) is the largest sector ETF with over $4 billion in assets. It was up 12.7% year to date as of June 28, compared with a 4.1% gain for the S&P 500, according to Morningstar. The iShares Dow Jones US Healthcare Provider (NYSEArca: IHF) posted a 20.7% rise.

Jeffrey Loo, S&P Equity Research’s head of healthcare coverage, partially attributes the U.S. sector’s relatively strong year-to-date returns through late June to “a rebound from underperformance in 2010, when valuations were hurt by uncertainty related to health care reform.”

Loo believes that “investors have become more comfortable with and better understand the impact reform has and will have on each of the sector’s sub-industries,” according to a note. “Indeed, some of the sub-industries anticipated to absorb the brunt of new reform regulations are among the best performing areas.”

Healthcare ETFs have also benefited from investors shifting into defensive sectors. [Investors Play Defense]

iShares Dow Jones US Healthcare Provider

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.