Healthcare exchange traded funds have extended their dominance in 2015. From 2011 through 2014, the number of healthcare ETFs ranking among a particular year’s top 10 non-leveraged sector ETFs averaged close to four.
That number is easily being exceeded this year as seven of the top 10 sector ETFs and six of the top 10 non-leveraged ETFs overall are healthcare funds. The Health Care Select Sector SPDR (NYSEArca: XLV) is continuing its outperformance of the broader market and is the top performer among the nine sector SPDR ETFs on a year-to-date basis after placing second last year. [Healthcare ETFs can Keep Soaring]
Healthcare stocks and ETFs have exceled over both short- and long-term time horizons.
“For the decade ended March 6, 2015, the health-care sector category posted average annualized returns of 13.8%, or more than 6 percentage points above the S&P 500’s 7.5% annualized return during that same interval. Over shorter time frames, the sector also has performed very well, returning 21.3% annualized during the past five years, 30.2% during the past three years, 24.0% during the past year, and 7.0% year to date. In every time period, the health-care Morningstar Category average has far outpaced the broad U.S. large-cap benchmark,” writes Morningstar analyst Robert Goldsborough in a recent research note.
Over the past year, 25 members of the Dow Jones Industrial Average have traded, four of which are healthcare names. Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK) and Pfizer (NYSE: PFE) combine for 16.6% of XLV’s weight. UnitedHealth (NYSE: UNH) along with Pfizer are two of just four Dow stocks with 10% year-to-date gains. UnitedHealth is the largest holding in the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF), one of this year’s best-performing health care ETFs.
IHF is one of an array of healthcare ETFs that have regularly been hitting all-time highs since the start of the year, fighting off concerns about the Supreme Court hearing challenges to the Affordable Care Act, or Obamacare, this month. [Some Soaring Healthcare ETFs]
“Why has the health-care sector done so well? Some of it relates to low valuations in 2009 and 2010 of pharmaceutical stocks, which make up anywhere from 40% to 45% of the sector. At that time, investors worried about the impact of U.S. health-care reform and a wave of major patent losses that peaked in 2012,” according to Morningstar.
Morningstar also highlighted the Vanguard Health Care ETF (NYSEArca: VHT) as another healthcare ETF to consider as the sector rallies on rampant mergers and acquisitions activity and favorable FDA news.
“VHT holds 323 health-care stocks, while XLV is a much more concentrated portfolio representing just 56 companies. VHT also dips further down the market-cap ladder than XLV, devoting 14% of assets to mid-cap firms and 7% of assets to small-cap companies. XLV, by contrast, invests just 7% of assets in mid-cap health players and has no small-cap allocation,” notes Morningstar.
Since the March2009 market bottom, XLV and VHT have surged an average of 279%. Investors have allocated $595.2 million in new money to XLV this year and $519 million to VHT.
Health Care Select Sector SPDR
