A Healthcare ETF Strategy To Outpace the Market
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The above chart compares the returns of exchange-traded funds [ETFs] representing a variety of commodities and stock indexes. The top performer in this group was the iShares Russell 2000 Small-Cap ETF (IWM), followed by the Healthcare SPDR (XLV) and US Dollar Index Bullish (UUP) which all had positive returns during the last three months. Thanks to a recent rally, the iPath Global Carbon ETN (GRN) cut some of its losses and moved ahead of the two laggards in this group – the SPDR Gold Trust (GLD) and the US Oil Fund (USO). Some other useful ETF benchmarks (listed from worst to best three month performance) not appearing on the chart include the following:
- Financial Sector SPDR (XLF): -19.9%
- iShares MSCI Emerging Markets Index (EEM): -19%
- iShares S&P 350 Index (IEV): -16.3%
- Energy Sector SPDR (XLE): -14.7%
- S&P 500 SPDR (SPY): -8.4%
- Technology Sector SPDR (XLK): -5.2%
- PowerShares DB Agriculture Fund (DBA): -2.6%
- Pharmaceutical HOLDRs (PPH): +2.5%
- HealthShares Enabling Technologies (HHV): +7.2%
- HealthShares Diagnostics (HHD): +9.3%
- iShares Nasdaq Biotechnology (IBB): +14.9%
- HealthShares Cancer (HHK): +15.7%
Healthcare is clearly outperforming all other market sectors and commodities over the past three months and I expect this to continue due to continued M&A activity in the space, underperformance of the sector over the past few years, and continued investor rotation for a source of consistent, defensive growth.
The top three HealthShares funds which I recommended last month as a basket ETF approach to healthcare investing rather than the widely held Healthcare SPDR occupy three of the four top-performing spots in the list above. I expect the top three HealthShares ETFs (Cancer-HHK, Enabling Techs-HHV, Diagnostics-HHD) will continue to outpace both the overall market and the Healthcare Sector SPDR as they are more leveraged to consolidation due to their stock holdings, which are concentrated on small and mid-cap companies – avoiding both extremes of the market cap spectrum.
In the interest of diversification, I also like the prospects for the iPath Global Carbon ETN and US Dollar Index Bullish ETF for a total of five fund holdings to beat the overall market for at least the remainder of 2008.
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This article has 4 comments:
- buyitcheap
- 427 Comments
Aug 14 08:52 AM- Kunst
- 627 Comments
Aug 16 09:33 PMHealthcare is bloated almost as much as government. They've been the last sectors still increasing employment. Consumers are having an increasingly difficult time paying insurance and medical bills. The sector is horribly inefficient and financially irrational. What do you think is going to happen as more workers lose their jobs, and therefore medical insurance? I just had a not-too-major surgery that was about $3000 after insurance (interestingly, nearly $30,000 before my PPO discount). Many families would find that a serious if not disastrous problem. One of the leading causes of bankruptcy is unexpected medical expense.
The healthcare sector is going to get beaten to death over the new few years between high costs and decreasing ability of consumers to pay for it. A lot of health care is discretionary. Even if you need it, many medical expenses can and will be put off. And speaking of bloated, government at all levels (the #1 addition to employment in the last few years) is going to get crunched big-time by falling revenues. Borrowing only works so long; then you have to actually cut spending. What's that going to do to the healthcare industry?
The hot money will flee tech and healthcare in due time, leaving all the later-coming trend followers holding the bag. Those of you who bought commodities late know the feeling.
- Kunst
- 627 Comments
Aug 16 11:44 PMwww.economist.com/disp...
- Kunst
- 627 Comments
Aug 17 12:04 AM"...each percentage-point rise in unemployment would result in an additional 1.1 million people losing health insurance"
www.time.com/time/busi...
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