Year to date, the fund has returned 5.97% versus 5.71% for the Healthcare Sector Index and over the last 12 months 21.60% versus 20.59% for the index. Rosenbluth attributes its slight outperformance to its mid cap and small cap holdings. The fund yields 1.67% and has a standard deviation of 12.15. “We like both funds,” says Rosenbluth. “It just depends on how defensive you want to be.”

Investors interested in broadening their horizons may want to consider an international health care sector fund. “Not all the best health care companies are domiciled in the U.S.,” Rosenbluth says. S&P highly rates the SPDR S&P International Health Care Sector ETF (IRY), which tracks the S&P BMI World ex-US Health Care Sector index. The fund has $31.3 million in assets and an expense ratio of 0.50%. At 74%, pharmaceuticals dominate the fund’s sub industry allocation. The fund’s top three holdings are Novartis, Roche Holding and Sanofi. S&P has a buy rating on Roche and Sanofi.

IRY is up 2.85% versus 3.19% for MSCI EAFE YTD and up 20.52% versus 18.30% for the index over the last year. The fund’s 2.3% yield is slightly higher yield than its U.S.-focused peers, and it has a standard deviation of 13.35. “IRY has a big bet on pharmaceuticals, but it invests in high quality companies and volatility is low,” says Rosenbluth. “There are lots of reasons to consider it.”

Finally, investors looking to focus on the managed care industry––which S&P expects to benefit from industry consolidation as well as from health care reform––can consider the iShares Dow Jones US Healthcare Provider Index Fund (IHF). This ETF, which is rated overweight by S&P and tracks the DJ US Select Health Care Providers Index, has $230.8 million in assets and an expense ratio of 0.47%.

Top holdings are UnitedHealth Group, Express Scripts Holding Co., WellPoint and Cigna. All four stocks are rated a buy by S&P analysts. The fund has returned 4.97% versus 5.71% for the Healthcare Index YTD and 16.96% versus 20.59% for the index over the last 12 months.

The group has lagged the health care sector because of weak earnings. However, S&P expects double-digit EPS growth for the group in 2013 as a result of market exits by underperformers and market expansion by companies that remain and higher prices. As the economy recovers and the number of people covered by these companies rises, “we believe IHF will outperform the broad market in 2013,” says Rosenbluth.

Investors need to be careful when choosing health care sector ETFs because health care stocks cover several industries and some ETFs are less diversified than others. “You can’t just choose based on the best performance or even which is the cheapest,” says Rosenbluth. “You need to look inside.” Still, he believes that allocating at least a portion of one’s assets to this sector will be a healthy move for investors this year.

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