Healthcare ETFs are financial instruments designed to replicate the investment performance of companies engaged in the healthcare industries.
These ETFs provide investors with the opportunity to gain exposure to a variety of healthcare companies, enabling them to achieve portfolio diversification and perhaps capitalize on the growth prospects associated with these industries.
This article aims to examine the healthcare business, while also analyzing the benefits and potential drawbacks associated with investing in healthcare ETFs.
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What are Healthcare ETFs?
The healthcare industry represents a significant component of the healthcare sector, encompassing many sub-sectors such as pharmaceuticals, healthcare equipment, biotechnology, and healthcare providers.
The growth of this sector is propelled by the increasing need for healthcare services, the demographic shift towards an elderly population, and the continuous progress in medical technology.
The healthcare sector is renowned for its substantial expenditures on research and development, protracted regulatory approval procedures, and notable patent safeguards.
Healthcare ETFs allocate their investments towards companies engaged in the exploration, advancement, and provision of healthcare services, pharmaceuticals, and medical apparatus.
Benefits of Investing in Healthcare ETFs
There exist numerous benefits associated with investing in biotech ETFs and healthcare ETFs. Primarily, these ETFs offer investors the opportunity to gain exposure to a diverse array of firms operating in the healthcare sectors.
Diversification has the potential to mitigate the risk associated with individual stock investments and potentially enhance investment results.
Furthermore, it has been observed that healthcare ETFs have exhibited superior performance compared to the overall market.
This can be attributed to the persistent increase in the demand for healthcare-related goods and services.
Another benefit associated with investing in healthcare ETFs is the possibility of achieving sustained growth over an extended period.
It is anticipated that the healthcare sector will sustain its expansion due to the progressive ageing of the worldwide population and the consequent rise in demand for healthcare services.
Risks of Investing in Healthcare ETFs
Although healthcare ETFs offer numerous benefits, it is crucial to acknowledge the presence of associated risks.
Regulatory uncertainty stands out as a prominent risk factor.
The healthcare sector is subject to extensive regulation, and alterations in governmental policies and regulations can have a significant impact on the financial viability of healthcare enterprises.
Moreover, healthcare enterprises are exposed to the inherent risks associated with conducting clinical studies and navigating the rigorous FDA approval procedures, which often entail significant time and financial investments.
One further concern associated with investing in healthcare ETFs is the possibility of market volatility.
ETFs may exhibit volatility as a consequence of various causes, including but not limited to clinical trial outcomes, regulatory declarations, and the expiration of patents. Therefore, investors must anticipate potential variations in the value of their investments.
What are the Best Healthcare ETFs
VanEck Biotech ETF (NASDAQ:BBH)
By tracking the overall performance of companies involved in genetic medication discovery and diagnostic equipment manufacture, VanEck Biotech ETF (NASDAQ:BBH) was introduced in December 2011 to provide investors with exposure to the sector.
The expense ratio of this exchange-traded fund (ETF) is 0.35%, and its total net assets are $485,5 million as of September 1. One of the greatest healthcare ETFs is VanEck Biotech ETF (NASDAQ:BBH).
VanEck Biotech ETF (NASDAQ:BBH) has a significant position in Gilead Sciences, Inc. (NASDAQ:GILD). Gilead Sciences, Inc. (NASDAQ:GILD) focuses on creating and disseminating treatments for uncommon diseases.
For the second quarter of 2018, Gilead Sciences, Inc. (NASDAQ:GILD) announced $6.59 billion in sales and $1.34 in non-GAAP earnings per share on August 3.
Although revenues were $140 million higher than expected, earnings per share were $0.30 lower than expected on Wall Street.
Only 56 of the hedge funds tracked by Insider Monkey were long on Gilead Sciences, Inc. (NASDAQ:GILD) in the second quarter, down from 60 long positions in the first.
Among the best healthcare stocks to invest in are Gilead Sciences, Inc. (NASDAQ:GILD), Thermo Fisher Scientific Inc. (NYSE:TMO), UnitedHealth Group Incorporated (NYSE:UNH), and AbbVie Inc. (NYSE:ABBV).
VanEck Pharmaceutical ETF (NASDAQ:PPH)
The VanEck Pharmaceutical ETF (NASDAQ:PPH) debuted in the market in December 2011 and tracks the same stocks as the MVIS US Listed Pharmaceutical 25 Index.
The overall health of the pharmaceutical sector is tracked by this index. The cost ratio of this ETF is 0.36% as of September 1 and it manages net assets worth $430.82 million. It’s a top pick among healthcare ETFs.
VanEck Pharmaceutical ETF (NASDAQ:PPH) has a significant position in Novo Nordisk A/S (NYSE:NVO). Danish pharmaceutical firm Novo Nordisk A/S (NYSE:NVO) focuses on developing and commercializing treatments for diabetes, obesity, and uncommon disorders.
The company reported Q2 revenue of DKK 54.3 billion and GAAP EPS of DKK 8.63 on August 10.
43 hedge funds were positive on Novo Nordisk A/S (NYSE:NVO) during the second quarter. The previous quarter saw 46 hedge funds placing bets on the company.
Global X Aging Population ETF (NASDAQ:AGNG)
Launched in May 2016, the Global X Aging Population ETF (NASDAQ:AGNG) seeks to invest in companies that cater to the world’s aging population.
The ETF’s holdings provide indirect exposure to the healthcare, pharmaceutical, and senior housing industries. The ETF has $54.2 million in net assets and a 0.50% cost ratio as of September 1.
Stocks in the industry of Alcon Inc. (NYSE:ALC) feature prominently in the holdings of Global X Aging Population ETF (NASDAQ:AGNG).
Alcon Inc. (NYSE:ALC) is a global leader in the design, production, and sale of eye care products. The company reported Q2 earnings of $0.69 per share on revenue of $2.4 billion on August 15th, above Wall Street expectations by $0.04 per share and $20 million.
The number of optimistic hedge funds on Alcon Inc. (NYSE:ALC) fell to 25 in the second quarter from 30 in the first, according to the database.
Fidelity MSCI Health Care Index ETF (NYSE:FHLC)
The Fidelity MSCI Health Care Index ETF (NYSE:FHLC) provides comprehensive coverage of the entire U.S. healthcare market, including big, mid, and small-cap companies across more than ten different healthcare industry segments.
Because of its broad diversification, the fund is less exposed to a few large pharmaceutical companies and more exposed to other sectors within the healthcare industry, such as pharmacy shops and insurance.
The MSCI USA IMI Health Care 25/50 Index is the primary index it is designed to mimic. The cost ratio of Fidelity MSCI Health Care Index ETF (NYSE:FHLC), which holds a portfolio of 406 stocks as of September 1, 2023, is 0.08%.
Fidelity MSCI Health Care Index ETF (NYSE:FHLC) has a significant position in Pfizer Inc. (NYSE:PFE). Pfizer Inc. (NYSE:PFE) is a biopharmaceutical company that conducts research and development, manufacturing, marketing, and sales operations on a global scale.
It offers medications and vaccines for a wide variety of therapeutic areas, including heart health, metabolic disorders, migraine, women’s health, and the human immunodeficiency virus (HIV).
Ric Dillon’s Diamond Hill Capital owns 6.9 million shares in the company, worth $253 million, as of the end of the second quarter.
Invesco Dorsey Wright Healthcare Momentum ETF (NASDAQ:PTH)
The Dorsey Wright Healthcare Technical Leaders Index is followed by the Invesco Dorsey Wright Healthcare Momentum ETF (NASDAQ:PTH), which debuted in October 2006.
At least 90% of the ETF’s assets must be invested in the stocks that make up the Index.
The NASDAQ US Benchmark Index provides at least 30 of the securities found in the Dorsey Wright Healthcare Technical Leaders Index.
The ETF is quarterly rebalanced and reconstituted, much like the index.
As of the 31st of August, the ETF has a 0.60% net cost ratio. In the healthcare sector, Invesco Dorsey Wright Healthcare Momentum ETF (NASDAQ:PTH) is a top-tier ETF to keep an eye on.
Invesco Dorsey Wright Healthcare Momentum ETF (NASDAQ:PTH) has a substantial position in IDEXX Laboratories, Inc. (NASDAQ:IDXX).
Manufacturer of veterinary products, IDEXX Laboratories, Inc. (NASDAQ:IDXX) operates in three divisions: Companion Animal Group; Water Quality Products; and Livestock, Poultry, and Dairy.
On August 1st, the company announced Q2 results that were above market expectations by $9.58 million in revenue and $0.23 in non-GAAP EPS.
There were 43 hedge funds long IDEXX Laboratories, Inc. (NASDAQ:IDXX) at the end of the second quarter. In contrast, the previous quarter saw 47 hedge funds posting bullish positions on the company.
Vanguard Health Care Index Fund (NYSE:VHT)
The goal of the Vanguard Health Care Index Fund (NYSE:VHT) is to provide results that correspond to those of the Spliced U.S. Investable Market Health Care 25/50 Index, which is used as a benchmark for evaluating the overall health of healthcare firms.
This ETF is passively managed, using complete replication where possible and sampling when required by regulations.
Stocks in companies that produce or provide goods and services for the medical and healthcare industries are included.
The cost ratio for Vanguard Health Care Index Fund (NYSE:VHT), which was launched on January 26, 2004, is 0.10%. The fund’s current portfolio consists of 416 stocks. It’s among the top healthcare ETFs.
Vanguard Health Care Index Fund (VHT) has AbbVie Inc. (NYSE:ABBV) as one of its top holdings. AbbVie Inc. (NYSE:ABBV) is a pharmaceutical company that focuses on research and development, manufacturing, and worldwide distribution.
AbbVie Inc. (NYSE:ABBV) was held by 74 hedge funds during the second quarter, down from 75 during the first. D E Shaw has a $224 million investment in the corporation and is a major shareholder.
First Trust Nasdaq Pharmaceuticals ETF (NASDAQ:FTXH)
The FTXH price on the NASDAQ represents the fund’s goal of tracking the performance of the Nasdaq US Smart Pharmaceutical Index.
The $22.9 million in net assets are held in 45 stocks by the newly launched First Trust Nasdaq Pharmaceuticals ETF (NASDAQ:FTXH).
The current cost ratio of the ETF is 0.60%. It’s a top pick among the top performing healthcare ETFs for your portfolio.
The largest holding of the First Trust Nasdaq Pharmaceuticals ETF (NASDAQ:FTXH) is Johnson & Johnson (NYSE:JNJ).
The healthcare products sold by Johnson & Johnson (NYSE:JNJ) are among the most popular in the world.
The company’s second-quarter earnings announcement on July 20 revealed sales of $25.53 billion and non-GAAP EPS of $2.80, both of which were $860 million and $0.18 above market expectations.
88 hedge funds were long Johnson & Johnson (NYSE:JNJ) at the end of the second quarter. From 86 in the previous quarter, this is a significant increase.
Final Thoughts
Healthcare ETFs present investors with a handy avenue to access the expanding healthcare sector, offering potential benefits like as portfolio diversification and sustained long-term development.
Nevertheless, investors must acknowledge the potential regulatory and market risks that are inherently linked to these investments.
Individuals interested in exploring alternative investing opportunities may find it worthwhile to study biotech ETFs as well as other various ETFs such as biotech ETFs, consumable staples ETFs, and tech ETFs.
Private banking clients often seek expert advice on investment strategies, including the potential of allocating a portion of their portfolios to those ETFs within diversified investment funds.
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