This year was another in which investors were treated to splendid performances by the health care sector.
The Health Care Select Sector SPDR (NYSEArca: XLV) appears destined to finish the year second behind the Utilities Select Sector SPDR (NYSEArca: XLU) for top honors among the nine sector SPDR ETFs, but XLV’s 26.5% year-to-date gain does not tell the whole health care sector story.
Five of the top 10 sector ETFs in 2014 are health care funds. 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. [Dominant Health Care ETFs]
Rightfully so, extended dominance by the health care should make investors question whether the sector’s bullishness can continue in 2015. A look at the Vanguard Health Care ETF (NYSEArca: VHT) says the answer is “yes,” but investors will do well to protect their profits.
“Since a major RS low was hit back in Feb. 2011, it has paid to be long and stay long Health Care. Sure, there have been periods of underperformance, but the intermediate-term trend has been rock steady and that remains the case today. One thing perhaps that a tactical investor might have an eye on could be that VHT is now approaching the top of its 2011 relative strength uptrend channel. A breakout could accelerate the RS streak, but failure to breakout could open the door for some profit taking. However, it would take a breakdown below the bottom of the uptrend channel to seriously impact this longer-term relative strength call,” according to Jonathan Beck of J. Beck Investments.
VHT, one of the largest health care ETFs after XLV, is up 25.5% this year. In addition to its 22.1% weight to the biotech industry, VHT has thrived due to its substantial exposure to blue chip pharmaceutical names, a trait the ETF shares with rivals such as XLV.
Sixteen of the Dow’s 30 stocks are up at least 10% this year. Two are Johnson & Johnson (NYSE: JNJ) and Merck (NYSE: MRK), a combined 15.1% of VHT’s weight at the end November.
“Protecting profits as VHT looks to accelerate a move to test the top of its 2011 price (log) uptrend channel does begin to pose some issues as strong supports look to be further and further away with its refusal to pause or pull back. Initial support is now near 120 or the Sep. 2014 high and the Oct. 2014 breakout. The bottom of the trend channel closer to 115 represents key secondary support,” according to J. Beck Investments.
Last week, Vanguard lowered the fees on VHT to 0.12% per year, moving the fund into a tie with the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) for the title of cheapest health care ETF. [Vanguard Cuts Fees on Sector ETFs]
Vanguard Health Care ETF
