Exchange-traded funds tied to the health-care sector have been among the best performers of late, and demographic and technology trends indicate the sector at large could be a profitable place for investors over the long haul.
ETF sponsor IndexIQ signaled its plan to enter this space with its recent registration filing with the Securities and Exchange Commission for the IQ Healthy Hearts ETF, which goes by the ticker symbol HART. The fund will have a net expense ratio of 0.45% and is expected to launch in February to coincide with American Heart Month, an annual federally designated event.
The HART fund tracks the IQ Candriam Healthy Hearts Index, a market cap-agnostic roster of companies from across the globe that are contributing to global health-related goals such as monitoring and curing heart diseases or helping people adopt a healthy lifestyle that limits cardiovascular risks. The index is heavily tilted toward the health-care, consumer staples and technology sectors.
According to the prospectus, the index’s thematic selection criteria reflect initiatives, research and programs of the American Heart Association Inc., a non-profit charity whose mission is fighting heart disease and stroke.
The focus areas include:
• Diagnosis and/or treatment of cardiovascular diseases such as atherosclerosis, thrombosis, heart attack and vascular surgery.
• Manufacturing and distribution of healthy food.
• Manufacturing and distribution of wellness products.
• Providing services allowing people to access information about health and thereby make better informed decision.
• Providing solutions for people to track their fitness and engage in a healthy lifestyle.
Eligible companies are assigned a score between 0-10 based on either the percentage or dollar value of revenue that a company derives from activities relevant to the theme, or a measure of the impact a company’s activity has on the theme.
The index is a collaboration between IndexIQ and Candriam Belgium S.A., a sustainable investing-focused asset manager and affiliate of New York Life Investments, a unit of New York Life insurance Company.
IndexIQ is also owned by New York Life, and it and Candriam have previously joined forces on two IndexIQ ETFs with a focus on environmental, social and governance investing principles.
The HART fund also has an ESG twist because its index employs an exclusion screen based on compliance with the principles of the United Nation’s Global Compact, which calls on companies to align their operations and strategies with 10 principles in the areas of human rights, labor, environment and anti-corruption.
In addition, the index applies a screen that eliminates companies that exceed a minimum revenue threshold level in the following areas: those that operate in countries with oppressive regimes, and those involved in the adult content, alcohol, vaping, armament, gambling, nuclear, and tobacco and non-research, non-prescription or recreational cannabis sectors, or that use animal testing or genetic modification in research and development.
The end result will be a portfolio with 50 to 80 companies weighted on a modified market-cap basis and rebalanced quarterly.
IndexIQ entered the ETF business in 2008 with a focus on bringing lower-cost versions of alternative, hedge fund-like investment strategies to retail investors. It has subsequently broadened its product lineup to include more traditional equity and fixed-income strategies. It currently has 20 U.S.-listed ETFs on the market with total assets under management of roughly $4 billion.
While the HART fund isn’t yet open for business, some its particulars are available on the IndexIQ website. As of yesterday, the top five holdings were Eli Lilly, Johnson & Johnson, Apple, Novo Nordisk and Novartis.
The HART fund will participate in the booming health-care sector that has been one of the best-performing areas among U.S. equities. This space runs the gamut from big pharma and biotech to genomics and medical devices.
According to ETF Database's sector power rankings, the 60 ETFs it classifies within the health-care sector collectively ranked fourth in three-month fund flows, third in average three-month returns and second in aggregate assets under management as of January 18.