By recent standards, Thursday was a docile day for the health care sector, the second-best performer in the S&P 500 this year behind materials. “Just” six healthcare exchange traded funds made new highs Thursday compared with 26 the day before.
When six of a sector’s ETFs reaching new highs on a particular day is considered a slow day, that speaks to that sector’s strength. Additional anecdotes highlight the strength of healthcare ETFs in 2015. For example, the Health Care Select Sector SPDR (NYSEArca: XLV), the largest healthcare ETF by assets, is up 6.1% year-to-date, but that can be considered “average” among healthcare funds.
At Thursday’s close, five the top 10 non-leveraged sector ETFs and four of the 10 best non-leveraged ETFs of any variety to this point in 2015 were healthcare funds.
On the basis of a bullish outlook for managed care providers, biotech names and healthcare distributors and assorted other catalysts for the healthcare sector, we went looking for the healthcare ETFs that are really delivering this year, some of which have “hidden gem” status. The requirements for inclusion on this list are being a dedicated healthcare sector or industry fund with a 2015 gain of at least 10%. Let’s get started with the…
PowerShares S&P SmallCap Health Care Portfolio (NasdaqGS: PSCH)
YTD: Up 10.6%
Comment: PSCH, the small-cap counterpart to XLV, was one of the six healthcare ETFs that hit all-time highs Thursday. Although the combination of small-caps and health care often prompts investors to think of high risk-high reward biotechnology stocks, PSCH is not a biotech ETF in disguise.
Actually, the opposite is true. PSCH’s biotech weight is less than 6.3%, making that the ETF’s smallest industry weight. Medical device makers and services providers, two of the strongest performing healthcare sub-sectors this year, combine for nearly 65% of PSCH’s weight. Nearly three-quarters of the ETF’s 70 holdings are considered small-cap growth names.
BioShares Biotechnology Clinical Trials Fund (NasdaqGM: BBC)
YTD: Up 14%
Comment: With its December debut, BBC is one of the newest biotech ETFs, but that has not prevented the ETF from turning in a stellar 2015 performance. The new ETFtracks the BioShares Biotechnology Clinical Trials Index, which is sponsored by LifeSci Index Partners, LLC.
The index excludes large pharmaceuticals companies as well as medical devices and diagnostics; life science tools; specialty pharmaceuticals, generic drugs and outsourced drug delivery; healthcare services; contract research organizations; neutraceuticals; agricultural biotechnology; animal health; diversified healthcare; food sciences; information technology; and nanotechnology firms. [Interesting Biotech ETFs on the Way]
BBC is off to a decent start, having accumulated $6.2 million in assets under management in two months of trading.
ALPS Medical Breakthroughs ETF (NYSEArca: SBIO)
YTD: Up 14.5%
Comment: Another new kid on the healthcare ETF block (it debuted on the last day of 2014), SBIO SBIO tracks the Poliwogg Medical Breakthroughs Index (PMBI), which is comprised “of small-cap and mid-cap pharmaceutical and biotechnology stocks listed on U.S. stock exchanges that have one or more drugs in either Phase II or Phase III U.S. FDA clinical trials,” according to a statement released by ALPS.
Companies with market values in excess of $5 billion do not gain admittance to SBIO. The result is a limited of treatments produced by SBIO holdings having as of yet reached Phase III trials. However, the advantage is the ETF could notch handsome rallies as its holdings navigate the FDA trial process.
ARK Genomic Revolution Multi-Sector Fund (NYSEArca: ARKG)
YTD: Up 10.5%
Comment: The lone actively managed member of this list, ARKG is also fairly new, having come to market in October.
“Securities within ARKG are substantially focused on and are expected to substantially benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments, improvements and advancements in genomics into their business. One such way this is accomplished is by offering new products or services that rely on genomic sequencing, analysis, synthesis or instrumentation,” according to ARK.
Active management has its advantages. ARKG’s management team is not constrained by market cap, which helped the ETF be the only healthcare fund that legitimately enjoyed the surge in shares of microcap Rosetta Genomcis (NasdaqGS: ROSG) earlier this month. [One ETF Gets a Lift From Rosetta Genomics]
SPDR Pharmaceuticals ETF (NYSEArca: XPH)
YTD: Up 15.5%
Comment: The equal-weight XPH offers investors a compelling mix of familiar blue chip pharmaceuticals names along with smaller, more nimble firms. Companies in the latter category are the ones more likely to be working on breakthrough treatments or be subject to mergers and acquisitions that can push shares higher. XPH’s largest holding is Salix Pharmaceuticals (NasdaqGS: SLXP), which Valeant Pharmaceuticals (NYSE: VRX) said it will acquire for $10.1 billion, or $158 per share.
Market Vectors Biotech ETF (NYSEArca: BBH)
YTD: Up 12%
Comment: The $740 million BBH is one of the more straightforward funds on this list as it is dominated by biotech’s “big four.” Gilead Sciences (NasdaqGS: GILD), Amgen (NasdaqGS: AMGN), Celgene (NasdaqGS: CELG) and Biogen Idec (NasdaqGS: BIIB) combine for 43% of BBH’s weight.
Still, BBH is levered to biotech takeover talk because at least six of its other 22 holdings have been previously mentioned as potential targets.