ETF Trends
ETF Trends

Last year, the Health Care Select Sector SPDR (NYSEArca: XLV) gained 41.4%, a performance that was good enough to make it the third-best of the nine sector SPDR ETFs.

With a run like that, XLV may not need much more praise, but give the ETF some credit. It is one of just two sector SPDRs, the Utilities Select Sector SPDR (NYSEArca: XLU) is the other, that has turned in a positive year-to-date performance.

It is just one day, but when U.S. stocks rallied Thursday, investors rushed to XLV, sending the ETF higher on volume that was 57% above the three-month trailing average. XLV also lived up to its reputation as one of the best SPDRs to own in the month of January despite the fact that heading into Thursday’s session, just one of 30 Dow stocks were higher on the year. [Two Sector ETFs for January]

That is significant because Dow components Johnson & Johnson (NYSE: JNJ) and Pfizer combine for 21% of XLV’s weight. Merck (NYSE: MRK), the one Dow stock higher on the year, is XLV’s third-largest holding with a weight of 7.1%.

Although J&J and Pfizer have struggled, pharmaceuticals stocks, broadly speaking, have been solid performers again this year, bolstering XLV and pharma-specific ETFs like the Market Vectors Pharmaceutical ETF (NYSEArca: PPH) and the SPDR Pharmaceuticals ETF (NYSEArca: XPH) along the way. [Fun With Pharma ETFs]

However, XLV’s fortitude in the face of adversity is not solely attributable to the pharma sub-sector. Biotechnology stocks, four of which are found in XLV’s top-10 holdings, have again been stellar performers. In a sign of just how strong biotech ETFs have been this year, the two “worst” of the five major biotech ETFs still have double-digit year-to-date gains. The other three rank among the year’s 10 best non-leveraged ETFs. [Big Gains Ahead for This Biotech ETF]

Another contributor to the health care sector’s upside has been the equipment and devices sub-industry. Heading into the start of trading Friday, the iShares U.S. Medical Devices ETF (NYSEArca: IHI) was up more than 2% this year.

Strength (or weakness) in the biotech and medical devices sub-sectors serves as a reminder about XLV’s composition. Yes, J&J, Pfizer and Merck jump off the screen as dominating this ETF. However, bioech, equipment and life sciences tools makers combine for nearly 40% of the fund’s weight. That says XLV is arguably more of a risk on play than its name implies and it is not a bad thing that XLV is again exhibiting leadership traits in 2014.

Chart Courtesy: State Street Global Advisors