Vanguard Health Care ETF (NYSEARCA:VHT) was up an impressive 21% this past year, besting the S&P 500 and running close to the Dow Jones Industrial Average for the past 12 months.
That is pretty impressive given the volatility of the future of healthcare in the 2017. And it was underscored at the end of December with the top generic drug maker in the U.S., Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), announced on Dec. 27 that it was cutting its workforce by 25%, after a year where it lost half its market cap and decimated its dividend.
The point is, healthcare was a tough way to make a 20% gain last year, yet VHT did it and it paid a 1.6% dividend in the process.
The VHT ETF is set up to track the MSCI US Investable Market Health Care 25/50 Index. The index is made up of large-, mid- and small-cap U.S. healthcare stocks, which cover every niche from pharmaceuticals to research and development to equipment.
Although that broad mandate seems like it would provide enough diversification to allow its managers to steer clear of dangers while maximizing opportunities, 2017 didn’t provide very secure footing.
The defeat of Obamacare (aka, the Affordable Care Act) was a top priority from inauguration day forward, and the jockeying over what was or wasn’t in the new legislation was constantly shifting.
It was hard to get a read on if drug pricing was going to hurt big name drugs and benefit generics or how mergers would best be pulled off by big firms to keep their businesses moving in the right direction.
In this kind of environment, sometimes it can be a curse to have too many options to choose from at your disposal. But not for the crew at VHT.
The Real Strengths of VHT
Currently, the ETF’s top holdings are big pharma and insurers — Johnson & Johnson (NYSE:JNJ), UnitedHealth Group Inc (NYSE:UNH), Pfizer Inc. (NYSE:PFE), AbbVie Inc (NASDAQ:ABBV) and Merck & Co., Inc. (NYSE:MRK).
This base of solid companies has kept VHT on firm footing throughout the tumultuous year and set it up well for 2017.
Generally, Vanguard funds are known for their incredibly low fees as well as their rock-solid performance and VHT certainly fits that bill. Since 2007, VHT has averaged about 15% annual returns for the past decade and much of that growth is happening in the latter years.
This isn’t a fund for trading, but a foundational fund to invest in for the long haul. With the graying of America, as well as Europe and Asia, the demographics all but guarantee that there will be plenty of opportunities in the healthcare sector for many years to come.
Also remember, China is just starting to build out a robust healthcare system for all its citizens as it moves into First World status, which will be another enormous long-term boost for the best companies.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
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