Another market cap-weighted health-care behemoth ETF, the Vanguard Health Care ETF (VHT), has a slightly better year-to-date performance versus XLV with a return of 3.7 percent. It has a one-year annualized return of 6.5 percent, a three-year average return of 10 percent and a five-year return of 10.5 percent. It has $9 billion in AUM and an expense ratio of 0.10 percent. It follows the MSCI U.S. Investable Market Health Care 25/50 Index.
It has a slightly different sector mix than XLV, although its top three individual stock names are the same. Pharmaceuticals is its top sector at 38 percent, health-care equipment is 27 percent and biotechnology is 14 percent. Johnson & Johnson is the fund’s biggest holding at 9 percent, with Pfizer at 6 percent and UnitedHealth Group at 5.6 percent.
The Invesco DWA Healthcare Momentum ETF (PTH) is a smart-beta ETF that's faring a little better performance-wise than the two market cap-weighted funds. It has gained 11.6 percent this year, but is down 8 percent on a one-year annualized basis. It’s up 20 percent on a three-year annualized basis and 11 percent on a five-year basis. It has $139 million in AUM and an expense ratio of 0.60 basis-points.
PTH’s top sector is health-care equipment at 40 percent, with biotechnology at 30 percent and health-care providers at 18 percent. Exact Sciences is its top stock at 6.2 percent, with Mirati Therapeutics at 6 percent and Axsome Therapeutics at 4.7 percent
Kalivas says PTH’s strategy is to chose stocks based on relative strength or momentum, and it can move across the market-cap sector. As it rebalances, PTH tries to buy the winners or emerging winners and remove those that are starting to struggle. He says 80 percent of the outperformance is attributed to the stock selection.
Investors who might consider buying into the broader health-care sector on the current weakness need to think about how the current political climate is shaping up and not base their decision on the usual valuation metrics, Schoen says.
“You can say something fundamentally looks undervalued, but it’s going to have a valuation discount to the market because there are uncertainties around the group,” she says.