Going to the hospital is rarely pleasurable, but investing in hospital stocks can be profitable. That much has been proven by the SPDR S&P Health Care Services ETF (NYSEArca: XHS), an unheralded ETF that is up 28.2% year-to-date.
While XHS has just $55.6 million in assets under management and does not grab a lot of attention, it does have a quasi-competitor in the form of the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF). IHF, itself a stout performer this year, has gained prominence for its utility as a winning Obamacare ETF. [Obamacare Makes This ETF Look Good]
XHS is a credible Obamacare ETF in its own right. Here is why: Exposure to hospitals. IHF allocates nearly its entire weight to health insurance firms and related entities. As more of an equal-weight ETF, XHS features a 16% weight to health care distributors, a 21.7% allocation to managed care firms, an almost 31% stake in health care services companies and a 31.5% to health care facilities operators.
“Hospitals are the big winners in the Affordable Care Act because more people — up to 27 million – could end up buying insurance and going for procedures. Unlike in times past, the hospitals won’t have to do a lot of those procedures for free,” reports Eric Balchunas for Bloomberg.
That is good news for companies like HCA Holdings (NYSE: HCA), Tenet Healthcare (NYSE: THC) and Community Health Systems, as Bloomberg noted. All three are top-10 holdings in XHS.
Although in modest fashion, investors are starting to take note of XHS. Nearly as soon as it became apparent that Obamacare was here to stay, IHF was unearthed as a prime beneficiary of that news. XHS is just two years old, but the ETF has hauled in almost 63% of its AUM total since the start of the year. By comparison, IHF’s assets have grown by 21% this year. [An Obamacare ETF Winner]
XHS may have a small AUM total (for now) and light daily volume (less than 5,100 shares for the trailing three months), but the ETF is not illiquid. In the second and third quarters, XHS never traded at more than a half a percent discount or premium to its net asset value, according to State Street data.
Since XHS debuted two years ago, it “has had a 77 percent return, 12 percent more than the broad health-care sector,” Bloomberg reported.
Importantly, an investment in XHS does not mean investors need to trade in a broader health care ETF. Rather, XHS can act as a complement to broader health care funds because ETF like the Health Care Select Sector SPDR (NYSEArca: XLV) and Vanguard Health Care ETF (NYSEArca: VHT) feature scant exposure to hospital stocks.
SPDR S&P Health Care Services ETF Trends
ETF Trends editorial team contributed to this post.