Healthcare ETFs Start 2024 on a Positive Note
After underperforming in 2023, the healthcare sector seems to be back on track at the start of the New Year. Healthcare generally outperforms during periods of low growth and high uncertainty.
The ultra-popular Health Care Select Sector SPDR Fund XLV has risen 1.8% in the initial trading days of 2024 against a loss of 0.6% for SPDR S&P 500 Trust SPY. This indicates that this laggard of last year has emerged as a winner to start the New Year.
The gains came on the back of some sector rotation along with strength in biotechnology and pharmaceutical firms. Investors are in search of cheap stocks for their portfolios after a huge surge in 2023. Healthcare stocks didn’t explode much last year amid the broad market rally (read: Value ETFs Reach New 52-Week High to Start 2024).
Many healthcare ETFs have been touching new 52-week highs. These include Health Care Select Sector SPDR Fund (XLV), Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH, Fidelity MSCI Health Care Index ETF FHLC and VanEck Vectors Pharmaceutical ETF PPH.
The solid trend is likely to continue for the rest of the year, given several encouraging trends. These include cutting-edge medicines, new drug approvals, accelerated pace of innovation, promising drug launches, cost-cutting efforts, an aging population, technological advancements, expanding insurance coverage, the rising middle class, demand for new drugs, and ever-increasing health care spending. Further, deal activities will also act as catalysts for the sector.
Continuous innovation in medical technology, including telemedicine, AI in diagnostics, and personalized medicine, is improving patient care and operational efficiency. This will drive sector growth by enabling new treatments and better patient outcomes. Changes in healthcare policy, such as potential expansions of Medicare or Medicaid, can increase access to healthcare for more Americans. This, in turn, could lead to higher demand for healthcare services.
ETFs in Focus
Health Care Select Sector SPDR Fund (XLV)
Health Care Select Sector SPDR Fund is the most popular healthcare ETF with an AUM of $37.6 billion and an average daily volume of 8.4 million shares. It follows the Health Care Select Sector Index and holds 64 securities in its basket. Pharma takes the largest share at 30.3% from a sector look, while healthcare providers and services, healthcare equipment and supplies, biotech and life sciences tools & services have double-digit exposure each.
Health Care Select Sector SPDR Fund charges 10 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: How to Trade With ETFs & Win in a Record-High Market?).
Vanguard Health Care ETF (VHT)
Vanguard Health Care ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 424 stocks in its basket. Pharma takes the largest share at 28.1%, while biotech and healthcare equipment round off the top three spots.
Vanguard Health Care ETF is also one of the most popular and liquid ETFs, with AUM of $16.6 billion and an average daily volume of about 246,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares U.S. Healthcare ETF (IYH)
iShares U.S. Healthcare ETF offers exposure to 114 U.S. healthcare equipment and services, pharmaceuticals, and biotechnology companies by tracking the Russell 1000 Health Care RIC 22.5/45 Capped Gross Index. In terms of industrial exposure, pharma takes the top spot at 30%, followed by healthcare equipment (19.3%) and biotech (18.2%).
iShares U.S. Healthcare ETF has amassed $3.1 billion in its asset base while charging 40 bps in annual fees. It trades in a moderate volume of around 56,000 shares a day and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Fidelity MSCI Health Care Index ETF (FHLC)
Fidelity MSCI Health Care Index ETF provides exposure to 406 healthcare stocks and tracks the MSCI USA IMI Health Care Index. Pharma accounts for 27.1% share while healthcare providers and services, healthcare equipment and supplies, and biotech round off the top three spots with double-digit exposure each (read: all the Healthcare ETFs here).
Fidelity MSCI Health Care Index ETF has AUM of $3 billion. Its expense ratio is 0.08%, while volume is good at 166,000 shares a day. FHLC has a Zacks ETF Rank #3 with a Medium risk outlook.
VanEck Vectors Pharmaceutical ETF (PPH)
VanEck Vectors Pharmaceutical ETF follows the MVIS US Listed Pharmaceutical 25 Index, which measures the performance of companies involved in pharmaceuticals, including pharmaceutical research and development as well as production, marketing and sales of pharmaceuticals. It holds 26 stocks in its basket.
VanEck Vectors Pharmaceutical ETF has amassed $426.2 million in its asset base and trades in a good volume of about 109,000 shares a day. It charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
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SPDR S&P 500 ETF (SPY): ETF Research Reports
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
iShares U.S. Healthcare ETF (IYH): ETF Research Reports
Vanguard Health Care ETF (VHT): ETF Research Reports
VanEck Pharmaceutical ETF (PPH): ETF Research Reports
Fidelity MSCI Health Care Index ETF (FHLC): ETF Research Reports
