[This article appears in our June 2019 issue of ETF Report.]
Health care has taken a beating this year, lagging the other sectors by significant margins.
That said, it remains a crucial component in an investor’s portfolio, and the choices to consider are vast, with many subsectors available, such as biotechnology and pharmaceuticals. However, looking at the large cap, broad-based, U.S.-focused funds, there are just nine to consider.
Costs can vary quite a bit, with the Fidelity MSCI Health Care Index ETF (FHLC) carrying an expense ratio of 0.08%, while the smart beta First Trust Health Care AlphaDEX Fund (FXH) comes with an expense ratio of 0.63%, almost eight times the price of its cheapest competitor (see Figure 1).
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How Many Holdings Matter
When it comes to components, the Invesco DWA Healthcare Momentum ETF (PTH) has the narrowest portfolio, with just 47 holdings, while the Vanguard Health Care ETF (VHT) has the broadest, at 359. The largest fund in the space, XLV, has the second smallest portfolio, with just 63 holdings, the same number held by the Invesco S&P 500 Equal Weight Health Care ETF (RYH).
The cap-weighted funds have very similar portfolios, and indeed, all include the same three companies as their top holdings in varying percentages: UnitedHealth, Johnson & Johnson and Pfizer. Except for JHMH, which has the same top three components as the cap-weighted funds in the group, the smart beta ETFs have very little overlap in their top holdings, so there’s a lot of differentiation in the portfolios there (see Figure 2).
XLV tops the flows for this group for the 12-month period ended April 30, 2019, with a gain of $1.8 billion, followed by VHT, which pulled in $1.4 billion. Of the cap-weighted funds, IYH had the smallest inflows, pulling in just $162.1 million.
FXH had the most inflows for the smart beta funds in the group, with a gain of $542.9 million. But BTEC had the only outflows among the group of nine ETFs, losing $0.4 million, and falling behind JHMH, which pulled in $9 million.