With the exception of biotech and select medical device makers, the health care sector usually is not thought of as a bastion of volatility.
The opposite is true of small-caps, so the combination of small-cap health care stocks, which usually means biotech and medical equipment firms, under the umbrella of one ETF can yield interesting results.
That combination has worked for the PowerShares S&P SmallCap Health Care Portfolio (PSCH) . PSCH does not command the same attention as larger health care ETFs, but its track record demands a closer look. Over the past year, PSCH is up almost 40%. Over the past 24 months, the ETF’s returns swell to 55.6% and since its debut in April 2010, PSCH has more than doubled. [ETFs for Rising Health Care Names]
PSCH is down 2.8% year-to-date, indicating the fund has been caught on the wrong side of increased market volatility. Its holdings tell the story as health care is becoming an increasingly volatile sector. [Rising Volatility Not All Bad News]
Bespoke Investment Group has a list of S&P 1500 stocks above $10 with the largest intraday spreads on Feb. 5 with health care and energy tied with 12 names apiece. Three health care names appeared in the group of stocks with rising 50-day averages with the remaining nine in the group of falling 50-day lines.
Led by Questcor (QCOR), which is PSCH’s largest holding at 5.15% of the fund’s weight, three stocks combining for 6.4% of the ETF’s appear on Bespoke’s rising 50-day moving average list. The lists are “based on the average percent spread between the intraday high and low over the last 50 days,” according to Bespoke.
The nine PSCH constituents on the 50-day average falling list combine for nearly 10% of the ETF’s weight, led by Medidata Solutions (MDSO). Medidata is PSCH’s fourth-largest holding with an allocation of almost 4.2%.
Bottom line: With a portfolio comprised of 75.3% small-cap growth names with an average market cap of less than $2 billion, it is not surprising some of PSCH’s 65 holdings reside on the more volatile side of the ledger. However, that does not diminish the fund’s potential for out-performance, particularly in environment where biotech is in favor.
PowerShares S&P SmallCap Health Care Portfolio