Unloved Health Care ETFs May Surprise This Earnings Season


Looking deeper into the health care industry, FactSet projects health care technology will lead the industry, with sales growth of 17% for the first quarter, followed by biotechnology’s 12% sales growth.

The broad health care ETFs include significant tilts toward these sub-sectors. For instance, health care equipment & supplies make up 15.4% of XLV’s holdings, 15.8% of IYH and 15.5% of VHT. Biotech accounts for 22.8% of XLV, 25.3% of IYH and 23.7% of VHT.

Alternatively, investors who want to specifically target these areas may also look to ETF options like the iShares U.S. Medical Devices ETF (NYSEArca: IHI) or SPDR S&P Health Care Equipment ETF (NYSEArca: XHE). Both IHI and XHE are comprised of medical devices and health care equipment stocks. However, IHI follows a more traditional market cap-weighted index, which tilts toward Medtronic (NYSE: MDC) 14.1%, Abbot Laboratories (NYSE: ABT) 9.5% and Thermo Fisher Scientific (NYSE: TMO) 8.6%. In contrast, XHE follows a more equal-weight methodology, which means it has a larger tilt toward smaller companies, including micro-caps 29.2%, small-cap 23.2%, mid-caps 30.6% and large-cap 15.2%.

Additionally, for biotechnology exposure, investors can turn to the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), SPDR S&P Biotech ETF (NYSEArca: XBI) and First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT).

IBB, the largest biotech-related ETF, follows the cap-weighted Nasdaq Biotechnology Index, which includes a 78.1% tilt toward biotechs, 14.5% pharmaceuticals and 7.3% life sciences tools & services. The fund comes with a 0.48% expense ratio.

XBI follows a more equally weight indexing methodology, so investors can expect greater exposure to small- and mid-cap names. The fund has a 0.35% expense ratio.

Lastly, FBT also follows the equally weighted NYSE Arca Biotechnology Index which includes over two-thirds of its components in small- and mid-sized biotech names. The ETF has a 0.58% expense ratio.