Top Ranked Healthcare Service ETF in Focus: IHF - ETF News And Commentary
The health care industry which was one of the top performing sectors last year has started this year on a positive note as well. Products in this space like Health Care Select Sector SPDR (XLV) have easily managed to outperform the broader market fund SPDR S&P 500 (SPY) in the year-to-date frame.
The sector is benefiting from favorable industry trends such as increasing merger and acquisition activities, promising new drugs, growing demand in emerging markets, an aging population and ever-increasing health care spending.
Moreover, the sector has come out with pretty good numbers in the Q4 earnings season. Total earnings for the sector are up 23.4% on revenue growth of 12.6% with an earnings beat ratio of 85.4% and a revenue beat ratio of 68.3%.
A similar outperforming trend has also been noticed if one looks at the various subsectors of the health care industry. While biotech ETFs have been the star performers this year as well, health care service providers have also managed to perform as well as the broader pharmaceutical ETFs (read: Gilead, Amgen Q4 Earnings & Weak Outlook Affect Biotech ETFs).
The fast growing health care service segment is clearly benefiting from increased mergers and acquisitions. Moreover, companies within the segment are expanding their overseas business due to increasing regulations back home that sometimes become stifling.
Also, health care service providers are aggressively expanding their participation in exchanges, which is likely to be beneficial for their long-term growth. Moreover, these companies have healthy balance sheets and are generating strong cash flow from operations, signaling strong longer-term cash flow prospects (read: 3 Global ETFs for Yield & Growth).
Given strong fundamentals in this space, a look at the top-ranked ETF in the space, with a moderate level of risk, could be a good idea. One way to find a top ranked ETF in the health care service provider space is by using the Zacks ETF Ranking system.
About the Zacks ETF Rank
The Zacks ETF Rank technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors as well.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other funds with a similar level of risk.
Using this strategy, we have found one ETF in the space that has a Zacks ETF Rank #1 (Strong Buy) with a ‘Medium’ risk tolerance level. The details are highlighted below (read: Red-Hot Top Ranked Retail ETFs).
iShares U.S. Healthcare Providers ETF (IHF)
This ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 47 securities in its basket with the largest allocation going to United Health (UNH), Express Scripts (ESRX) and Anthem Inc. at 14.78%, 9.95% and 7.28% respectively. Other firms do not hold more than 6.7% of IHF.
The product has a certain tilt toward large caps, as these account for 56% share while the rest is roughly spilt between mid and small caps. Style-wise, the fund has a nice composition between value and growth stocks, with 35% exposure to stocks with both characteristics, 28% allocation to value stocks and the rest going to growth stocks.
The fund has been able to manage $682.1 million in its asset base and trades with light volumes of roughly 53,000 shares. It charges 43 bps in annual fees and expenses. The ETF has gained 32.8% in the past one year and 4.7% in the year-to-date frame (see: all the Healthcare ETFs here).
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ISHARS-US H C P (IHF): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
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