COVID-19 vaccines and drugs, along with investments in R&D activities to find better treatment options for chronic diseases, have placed the healthcare sector in the spotlight over the last couple of years. Driven by strong demand from an aging U.S. population and the growing prevalence of chronic diseases, national spending on health is expected to reach $6.80 trillion by 2030. Furthermore, the growth of telehealth and innovation and digitalization in healthcare systems are expected to boost the growth of the healthcare sector.
Amid current macro headwinds and uncertainties surrounding the market, investing in healthcare ETFs could help generate steady returns because of inelastic demand for healthcare products and services.
Therefore, we think quality healthcare ETFs Vanguard Health Care ETF (VHT), iShares Global Healthcare ETF (IXJ), and iShares U.S. Medical Devices ETF (IHI), which exhibit low volatility, could be solid bets now.
Vanguard Health Care ETF (VHT)
VHT offers exposure to U.S. healthcare stocks. It holds healthcare companies that span multiple industries in the broad healthcare space. The fund diversifies its holdings by applying weighting limits on regulated investment companies, such as no group entity may exceed 25% of the index weight. The main attraction of this fund is the depth of its holdings.
VHT tracks the MSCI US IM 25/50 Health Care Index. It has a 0.10% expense ratio, which compares with the 0.50% category average. The ETF has $17.55 billion in assets under management, with a total of 441 holdings. The fund’s major holdings include UnitedHealth Group Incorporated (UNH) with a 7.93% weighting, Johnson & Johnson (JNJ) with a 7.71% weighting, and Pfizer Inc. (PFE) with a 4.83% weighting. DBC’s fund flows came in at $298.31 million over the past month and $2.06 billion over the past year. It has a 0.81 beta.
The fund pays a $3.13 annual dividend, which yields 1.11% at the prevailing share price. Its dividend payouts have increased at a 10.6% CAGR over the past five years. VHT has gained 6.2% in price over the past year and closed the last trading session at $255.86. It had a NAV of $255.83 as of April 22.
VHT’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
iShares Global Healthcare ETF (IXJ)
IXJ offers broad exposure to the global health care sector, including global pharmaceutical, biotechnology, and medical device companies. This fund makes it a viable entry-point to global healthcare, considering its geographic and sector weights look neutral.
IXJ tracks the S&P Global 1200/Health Care -SEC Index. IXJ has a 0.43% expense ratio, which compares with the 0.50% category average. The fund’s major holdings include UnitedHealth Group Incorporated with a 6.85% weighting, Johnson & Johnson with a 6.37% weighting, and Pfizer Inc. with a 3.96%. It has $3.63 billion in assets under management. Over the past month, IXJ’s fund flows came in at $98.25 million, while its NAV was $88.21 as of April 21.
The ETF pays a $1.01 dividend annually, yielding 1.08% at the current share price. Furthermore, IXJ’s dividends have increased at a 4.4% CAGR over the past five years. Over the past year, IXJ has gained 8.7% in price to close the last trading session at $88.22. It has a beta of 0.71.
IXJ’s POWR Ratings reflect a strong outlook. The ETF has an overall A grade, which equates to Strong Buy in our proprietary rating system.
IXJ has an A grade for Trade and Buy & Hold and a B grade for Peer. The fund is ranked #3 in the Health & Biotech ETFs group. To get all IXJ ratings, click here.
iShares U.S. Medical Devices ETF (IHI)
IHI is a niche sector fund that focuses on domestic companies engaged in the medical devices sector of the broad healthcare industry. The fund invests in companies that manufacture and distribute medical devices, such as prosthetics, magnetic resources imaging (MRI) scanners, X-ray machines, and other non-disposable medical devices.
IHI tracks the DJ US Select/Medical Equipment Index. It has an expense ratio of 0.41%, compared with the 0.50% category average. It has $7.99 billion in assets under management, and a total of 67 holdings. IHI’s major holdings include Thermo Fisher Scientific Inc. (TMO) with a 16.17% weighting, followed by Abbott Laboratories (ABT) and Medtronic Plc (MDT) with 14.75% and 10.42% weighting, respectively. IHI has a 0.85 beta.
IHI has improved marginally over the past year to close the last trading session at $60.82. It had a NAV of $60.82 as of April 21.
IHI’s strong outlook is reflected in its POWR Ratings. The ETF has an overall A rating, which translates to Strong Buy in our proprietary rating system.
IHI has a B grade for Trade and Buy & Hold. Among the 41 ETFs in the Health & Biotech ETFs group, it is ranked #14. To see the additional POWR Ratings for Peer for IHI, click here.
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VHT shares were unchanged in premarket trading Friday. Year-to-date, VHT has declined -3.69%, versus a -7.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
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