Hot & Cold Health Care ETF Returns

The race to come up with a COVID-19 vaccine and treatments has taken on a renewed sense of urgency as cases of the novel coronavirus spike in many states across the country.

The U.S. reported nearly 37,000 new cases of the virus on Wednesday, matching the highs from April. At the same time, 766 coronavirus-related deaths were reported for that date, a depressing figure, though well below the peak fatality rate of 2,500+ in April.

Bolstered by the demand for coronavirus vaccines and treatments, health care stocks have largely outperformed this year—but the performance hasn’t been even.

The Health Care Select Sector SPDR Fund (XLV) was last down by 2.2% on a year-to-date basis, besting the 3.6% loss for the S&P 500.

With its broad exposure to all segments of the health care space, XLV holds some stocks that have benefited from COVID-19 and others that have been hurt by it.

In general, biotechnology stocks have seen the biggest pop this year, while stocks of medical device manufacturers and big pharmaceutical companies haven’t fared as well.

YTD Returns For S&P 500, XLV

Frantic Search

While numerous vaccines and treatments for the novel coronavirus are in development, a few have shown more promise than others at this relatively early stage.

Dexamethasone, a cheap and abundant steroid, and Remdesivir, an antiviral drug developed by American biotech giant Gilead Sciences, have both shown promise in reducing the fatality rate for advanced-stage COVID patients. Favipiravir, a generic antiviral drug used to treat the flu, has also shown promise in reducing coronavirus symptoms based on clinical trials in China.

Meanwhile, nearly 150 COVID-19 vaccine candidates are being developed worldwide. Twenty-one of those are in clinical trials, including three in phase III trials and eight in phase II trials.

Leading vaccine candidates include an mRNA vaccine from U.S. biotech company Moderna; another mRNA vaccine being jointly developed by German biotech company BioNTech and U.S. pharma giant Pfizer; a DNA-based vaccine from American biotech company Inovio; a protein-based vaccine from U.S.-based Novavax; and a viral vector vaccine from the American conglomerate Johnson & Johnson.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

The Imperial College of London and the University of Oxford have also aggressively pursued vaccines in collaboration with private partners.

If all goes to plan, some of these vaccines could be ready as early as this fall for emergency use and late this year or early next year for general use.

Big Gains For Biotech

With millions of potential customers for coronavirus treatments and billions more for any vaccine, investors have bid up stocks of companies involved in the search for a solution to the virus.

The SPDR S&P Biotech ETF (XBI), which holds many of the companies involved in the search, has performed strongly this year, gaining 20.1% on a year-to-date basis.

Interestingly, the top-performing health care ETF this year, the ARK Genomic Revolution ETF (ARKG), has only modest exposure to COVID-related companies. The fund, which is focused on companies innovating in the realm of genomics, is up 56.5% year to date.

None of the fund’s top holdings are directly involved with COVID-related solutions, accept perhaps Illumina, the DNA-sequencing powerhouse that has developed a COVID-19 test and manufactures sequencing machines that are being used in the search for coronavirus vaccines and treatments.

Much of ARKG’s portfolio holds biotech companies looking for cancer treatments and cures for rare diseases. Stocks of gene editing and genetic testing companies can be found in the portfolio as well.

Health Care Laggards

At the same time that drug companies focused on experimental COVID-19 solutions have seen their stock prices jump, many others’ focused elsewhere in the health care industry have stagnated.

The iShares U.S. Medical Devices ETF (IHI) is down 2.4% year to date; the VanEck Vectors Pharmaceutical ETF (PPH) is down 2.1%; and the iShares U.S. Healthcare Providers ETF (IHF) is down 4.7%.

Fearful of catching the novel coronavirus, many patients have decided to forgo or delay elective surgeries and other procedures that are typically the bread and butter of the health care industry. That’s weighed on demand for medical devices, some drugs and health care services in general.

YTD Returns For XBI, IHI, PPH, IHF

So, while one part of the health care sector is booming, another is struggling. But eventually, when the coronavirus pandemic ends, that dynamic could reverse, buoying the funds that are currently underperforming.

For a full list of health care ETFs, see the ETF.com Health Care Channel. To see which ETFs hold the largest position in a particular stock, use ETF.com’s reverse screener by typing www.etf.com/stock/TICKER; for example, www.etf.com/stock/NVAX.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2