From 2011 through 2014, the average number of healthcare exchange traded funds appearing on a particular year’s list of top 10 sector ETFs is almost four. That theme is being extended this year as seven of the top sector ETFs and six of the top non-leveraged ETFs overall are healthcare funds.
With the sector’s boom have come massive inflows. According to Bloomberg’s list of the 10 fastest growing ETFs for the three-year period ending Dec. 31, 2014, two are healthcare funds: The Vanguard Health Care ETF (NYSEArca: VHT) and the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF.
At the end of 2011, VHT had $729 million in assets under management, a figure that surged to $4.23 billion by the end of 2014. VHT’s AUM tally stood at $4.9 billion at the end of February. The ETF ties with the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) as the cheapest healthcare ETF with an annual expense ratio of 0.12%. [Healthcare ETFs Remain Sturdy]
IBB’s asset growth as been just as staggering as VHT’s. At the end of 2011, the ETF had $1.39 billion in assets before swelling to $6.93 billion at the end of last year, according to Bloomberg. Highlighting investors’ thirst for biotech ETFs, IBB has added over $1.6 billion in new assets this year, rising to $8.59 billion.
Strong earnings results will support the healthcare sector’s rising prices. Healthcare companies reported organic growth of all sectors, including 11% revenue growth and 22% earnings growth over the fourth quarter. Looking ahead, S&P Capital IQ projects S&P 500 healthcare earnings per share to rise 8.9% in 2015 year-over-year, compared to a 1.7% gain in the broader blue-chip index. [Healthcare Services ETFs Strengthening on Larger Client Base]
That strong organic growth coupled with rampant mergers and acquisitions activity and a slew favorable FDA news has helped scores of other healthcare ETFs pack on assets over the past several years. For example, the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) had $1.4 billion in AUM at the start of 2014, but that number has since more than doubled to over $3.2 billion.
FBT can lay claim to not only being last year’s top-performing healthcare ETF, but the best non-leveraged ETF of any type since the start of the current bull market six years ago. Healthcare and consumer discretionary ETFs are the sector ETFs most represented on the 10 best list of ETFs since March 2009. [Celebrating the Bull Market With ETFs]
Bolstered by deal-making and FDA approvals, dedicated pharmaceuticals ETFs have also seen massive inflows. For example, the $1.22 billion SPDR Pharmaceuticals ETF (NYSEArca: XPH) has added almost $160 million since the start of last year.