Stellar performances by health care stocks and exchange traded funds this year have been well-document and plenty of investors know that the Health Care Select Sector SPDR (NYSEArca: XLV) is the best of the nine sector SPDR ETFs to this point in the year.
Up 24.7% year-to-date, XLV, the largest health care ETF by assets, maintains an advantage of 130 basis points over the Utilities Select Sector SPDR (NYSEArca: XLU) for top honors among the nine sector SPDRs.
Underscoring just how strong the health care sector has been this year, XLV’s nearly 25% does not even qualify the fund for admission to elite status among health care ETFs. That despite $1.62 billion of inflows and being home to Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK) and UnitedHealth (NYSE: UNH) – three of the just seven Dow stocks that are up at least 20% this year. [Health Care ETFs are Leaders…Again]
Eight of the top-10, including each of the top five, sector ETFs this year are health care ETFs. Specifically, each of member of the top quintet is a biotech fund, according to Dorsey Wright data. Said another way, the five non-leveraged biotech ETFs are also 2014’s five best non-leveraged sector ETFs.
That group is paced by the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) and in a sign of just how strong biotech ETFs have been this year, the Market Vectors Biotech ETF (NYSEArca: BBH) has been the “worst” with a gain of over 29%.
FBT, BBH, the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), PowerShares Dynamic Biotechnology & Genome Portfolio (NYSEArca: PBE) and the SPDR S&P Biotech ETF (NYSEArca: XBI) entered Wednesday with an average 2014 gain of 33.6%, roughly two and a half times what the S&P 500 has delivered. [More Records for Biotech ETFs]
Combined, the five biotech ETFs have added about $1 billion in new assets this year with IBB and FBT combining for over 96% of that total.
But wait, there’s more. Smart or strategic beta health care ETFs have also rewarded investors, particularly those ETFs with a focus on pharmaceuticals stocks. Despite being underweight biotech relative to XLV, the Guggenheim S&P Equal Weight Healthcare ETF (NYSEArca: RYH), the equal-weight rival to XLV, is this year’s sixth-best health care ETF. That is good enough to make RYH the seventh-best sector ETF overall, according to Dorsey Wright data.
Each with year-to-date gains north of 26%, the SPDR Pharmaceuticals ETF (NYSEArca: XPH), another equal-weight ETF, and the PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP) are the next best health care ETFs.
PJP and XPH have performed well for different. XPH has delivered for investors due in part to its exposure to an array of health care names favored by hedge funds and some that have been front and center in the sector’s mergers and acquisitions cycle.
PJP, which evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares, has gotten a lift from significant biotech exposure. [Why This Pharma ETF is Soaring]
Health care’s out-performance is not new. Over the past three years, the average number of health care funds among those years’ 10-best sector ETFs is over three.
Chart Courtesy: Dorsey Wright & Associates