ETF Trends
ETF Trends

Some recent retrenchment by biotechnology stocks not withstanding, health care stocks and exchange traded funds remain some of this year’s top performers and that sentiment extends to global funds.

Bullishness for the health care sector has not been confined to the U.S. International health care stocks and global ETFs tracking the sector have been getting in on the fun as well. The iShares Global Healthcare ETF (NYSEArca: IXJ) is up more than 12% year-to-date.

IXJ allocates over 64% of its weight to U.S. stocks with Switzerland checking in at 11.3%. On a more positive note, due in part to the market’s heavy bias towards health care stocks, Switzerland is one of Europe’s most dependable dividend growth markets, explaining why it often commands valuation premiums relative to higher beta Eurozone nations. [Investors Like Switzerland ETFs]

There is an important difference between ETFs that carry the “global” label and those that are true international funds. That difference is to be remembered with IXJ because global allows for the inclusion of U.S. stocks, which in the case of IXJ has been a positive. [Health Care Heaven With ETFs]

“In fact, IXJ only has a standard deviation of 8.86%. The underlying portfolio’s average price-to-earnings (P/E) has risen since the passing of Obamacare, and it reached 26.25 by mid-2015. The fund’s alpha rating was a solid 5.33 in 2005, but that number surged to 12.44 by 2015. Modern portfolio theory (MPT) suggests that, in a vacuum, management must have went from very good to incredible over that time period. The more likely answer is the firms were able to use regulatory change to lock in higher earnings,” according to Investopedia.

IXJ does lack a couple of prominent themes from the world of ETFs. First, although it is a global fund, it is not a currency hedged ETF. In IXJ’s case that is just fine because health care stocks are strong dollar beneficiaries and the U.S. is a massive percentage of IXJ’s weight. Second, because it does include exposure to other countries, IXJ’s biotechnology weight is low compared to U.S.-focused health care ETFs for the simple reason that most of the world’s marquee biotech companies are based here.

“All told, IXJ is a relatively low-risk, low-return ETF highly influenced by regulations on the health care industry. It can play as a defensive holding for investors whose primary portfolio is highly correlated with the U.S. equities market,” notes Investopedia.

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.