Last week, I introduced you to my favorite ETFs in the utilities sector. Today, I focus on the third weakest sector, healthcare. Why? To identify sectors that are outperforming and underperforming the market for portfolio considerations.
Per Investopedia.com, healthcare sector businesses provide medical services, manufactures medical equipment or drugs, provide medical insurance, and facilitates the provision of healthcare to patients. It is one of the largest and most complex sectors in the U.S. economy, accounting for close to a fifth of the overall GDP-gross domestic product.
There are many sub-sectors in our U.S. healthcare area, including biotechnology/genomics, medical devices, and pharmaceuticals. My favorite broadbase healthcare funds ranked by asset size are as follows:
XLV-Health Care Select Sector SPDR ETF tracks companies in the Health Care Select Sector Index, including pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology companies. XLV is the largest fund in this group, with assets of 25.8 B and an average trading volume of 8.6 M.
VHT-Vanguard Health Care Index Fund ETF tracks the performance of the MSCI US Investable Market Index, including large, mid-size, and small U.S. companies within the health care sector. VHT has assets of 14.6 B and an average trading volume of 233 K.
FHLC-Fidelity MSCI Health Care Index ETF tracks the MSCI USA IMI Health Care 25/50 Index, companies in the health care sector in the U.S. equity market. FHLC has assets of 2.6 B and an average trading volume of 169 K.
IYH-iShares U.S. Healthcare ETF tracks companies in the Dow Jones U.S. Health Care Index, including health care providers, biotechnology firms, and manufacturers of medically related goods. IYH has assets of 2.59 B and an average daily trading volume of 41 K, the lowest traded volume in this group.
FXH-First Trust Health Care Alpha DEX ETF tracks companies in Strata Quant Health Care Index. FXH is the smallest in the group, with assets of 1.46 B and an average trading volume of 64 M.
I charted the performance of each fund beginning March 24, 2020, running to real-time. The results and returns by rank are as follows:
FXH-First Trust Health Care Alpha DEX ETF (blue line) up 82.86%, VHT-Vanguard Health Care Index Fund ETF (red line) up 73.31%, FHLC-Fidelity MSCI Health Care Index ETF (green line) up 72.36%, IYH-iShares U.S. Healthcare ETF (pink line) up 69.63%. The group laggard, XLV-Health Care Select Sector SPDR ETF (purple line), up 67.15%. The market, $SPX (green area), is up 86.31%.
Here are the key points:
1. Bigger is not always better. The largest fund XLV, was the lowest performer in this group, underperforming the market ($SPX) by 19%.
2. The smallest fund, FXH, was the top performer and still underperformed the market ($SPX) by 3.45%.
3. All of these select healthcare funds underperformed the returns of the market ($SPX).
4. These results represent a specific period. Different dates will result in different outcomes.
5. Past performance does not dictate future returns.
Here is what you should think about:
First, if you own similar healthcare funds, how are they performing compared to these funds?
Second, if you are not tracking your healthcare funds' performance, then why?
Parts of the market continue to trade at new highs. No one knows when the next large-scale selling begins. The current sector action is not signaling that a market top is in.
I will be watching to see if profit-taking hits the top-performing sectors and more money flow more into healthcare, utility, and consumer staple funds. When this happens, the institutions will short the previous high-flyers and long the sectors moving up.
What's next? My favorite technology funds.
In full disclosure, I do not hold any securities in this column.
Plan your work, work your plan, and share your harvest!
David O. England is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to email@example.com.