Head-To-Head: Healthcare Industry Standouts

by on April 23, 2013 | ETFs Mentioned:

Over the last few years, interest in the healthcare industry has been on the rise as investors embrace this popular corner of the market for its lucrative opportunities and attractive growth potential. The investment thesis behind this sector is quite simple: the U.S.’s growing aging population has made healthcare spending a significant portion of our nation’s GDP, as well as job creation and stock market appreciation. And while there are some potential roadblocks that could curb the healthcare industry’s growth, the sector’s promising long-term trends certainly warrant a closer look [see also How To But The Right ETF Every Time].

Thanks to the evolution of the ETF industry, there are several ways investors can gain cheap and easy access to healthcare equities. One question in particular that stumps many investors, however, is which approach to take; some choose to cast a wider net over the space with broad-based ETFs, while others may wish to establish a tactical tilt towards specific sub-sectors with more targeted products.

Biotechs and Big Pharma Take the LeadHealth Care ETFs

There are approximately 30 different healthcare-focused exchange-traded funds, ranging from broad-based products to funds that offer hyper-targeted exposure to biotechnology, pharmaceutical and medical devices equities.

The chart below highlights five healthcare ETFs, comparing their performances across various time frames, including year-to-date returns [see Baby Boomers ETFdb Portfolio]:

  • SPDR Health Care Select Sector Fund (XLV, A)
  • Dow Jones US Health Care Providers Index Fund (IHF, B+)
  • Dow Jones US Medical Devices Index Fund (IHI, B-)
  • Nasdaq Biotechnology Index Fund (IBB, A-)
  • Dynamic Pharmaceuticals ETF (PJP, B)

Across the board, healthcare ETFs have fared quite well over the years, generating attractive double-digit returns. From a specific sub-industry standpoint, biotechnology stocks (IBB) and pharmaceuticals (PJP) have delivered stellar performances, particularly in 2012. The broad-based ETF (XLV) has also provided meaningful returns, in some years beating out the healthcare providers (IHF) and medical devices (IHI) funds. While there is no universally right choice from the above ETFs, investors should also consider other obvious factors besides performance, including expenses, risk and portfolio composition.

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Disclosure: No positions at time of writing.