With the sector being the best performer in the S&P 500 this year, and by a healthy margin at that, there should be plenty of health care exchange traded funds making new highs.
That was not the case Wednesday when even as U.S. Stocks soared, just seven ETFs made all-time highs and of those seven, just one was a health care fund: The SPDR S&P International Health Care Sector ETF (NYSEArca: IRY).
While IRY is framed as an international fund, and it is, a global health care ETF is bound to be somewhat Europe heavy and IRY obliges. With Europe ETFs ranking among the more attractive developed market plays to start 2015, IRY has benefited.
While IRY is not a currency hedged ETF, it is exposed to the strong dollar theme because several of the fund’s major holdings derive a substantial portion of their revenue from the U.S. That allows the companies to repatriate strong dollars into the weaker local currency, including euros and francs, thereby buying more of the home currency. [Two Reasons to Like This ETF]
IRY has surged 17.1% this year, one of the best showings among the health care ETFs that can be deemed “traditional.” What makes that performance all the more impressive is IRY’s industry weights, particularly what the ETF is light on.
As an international ETF, IRY is bound to be light on biotechnology stocks and it is with a weight of just 5.6% to that high-flying group. A comparable U.S.-focused health care ETF is apt to have a biotech weight in excess of 20%. IRY is also light on health care services providers, one of the top-performing industry groups in the U.S. this year.
Cementing the notion that IRY is a hidden gem among strong dollar plays is the ETF’s over 73% weight to pharmaceuticals stocks. In the case of this fund, these are blue-chip names, the international equivalents of Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE). Swiss pharmaceuticals giants Novartis (NYSE: NVS) and Roche along with Sanofi (NYSE: SNY) combine for over 26% of IRY’s weight, which leverages the ETF to weakness in the Swiss franc and euro. [More Upside for Healthcare ETFs]
British stocks are 14.1% of IRY’s weight. It does pay to remember that the U.K. is one of the best, if not the best, ex-U.S. dividend market. In 2014, U.K. firms once again offered excellent dividend growth. Payouts there surged 31% to $135 billion, according to Henderson Global Investors.
SPDR S&P International Health Care Sector ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.