Healthcare ETF's

Battle on the healthcare front

Below is a look at how drastically different 3 “healthcare” ETF’s have preformed. Below that are some details about each funds industry exposure

FIRST TRUST HEALTH CARE ALPHADEX FUND (FXH)
ISHARES S&P GLOBAL HEALTHCARE (IXJ)
ISHARES DOW JONES US HEALTHCARE (IYH)

YTD
FXH -1.02%
IXJ -10.06%
IYH -8.05%
LLY -4.08%

1-yr
FXH +14.88%
IXJ -1.85%
IYH -0.53%
LLY +1.12%

May 2007 till today
FXH +7.87%
IXJ -24.01%
IYH -18.66%
LLY -42.31%

Now for a closer look at these 3 funds that claim to be covering the same sector of “healthcare”, yet have such drastically different returns:

Industry Exposure (FXH):
40.95% - Health Care Providers & Services
22.91% - Health Care Equipment & Supplies
19.91% - Pharmaceuticals
7.17% - Biotechnology
4.71% - Life Sciences Tools & Services
2.30% - Health Care Technology
2.02% - Internet Software & Services

Industry Exposure (IXJ):
61.56% - Pharmaceuticals
11.22% - Health Care Providers & Services
10.71% - Health Care Equipment & Supplies
8.54% - Biotechnology
2.30% - Life Sciences Tools & Services
0.27% - Health Care Technology

Industry Exposure (IYH):
47.60% - Pharmaceuticals
19.06% - Health Care Equipment & Supplies
15.22% - Health Care Providers & Services
14.11% - Biotechnology
3.80% - Life Sciences Tools & Services

A deeper look into these funds exposure areas clears up the large gaps in returns:

Lately there has been a full-fledged beat down on big Pharma (I’m not saying if it is justified or not) and you’ll notice right away that FXH has less than 20% of its holdings in Pharma. Compare that to the other two (IXJ & IYH) who have 62% and 48% in Pharma. I’ve thrown Eli Lilly (LLY) into the returns for comparison, as I think it is the best of the big Pharma stocks.

Given that I’m holding LLY already, and I’m not too hot on the Pharma sector as a whole, I find no reason to use IXJ or IYH to play the “healthcare” segment. Rather I see the exposure of FXH touching the sectors I am more interested in; equipment and service providers. These are the two areas, along with healthcare technologies, that I think have the best chance of growth.

I currently own some IXJ, and this research has convinced me to swap that out in favor of FXH. If Pharma starts to make a comeback, there is no doubt I’d be better off in either IXJ or IYH. For now I prefer the position of FXH, I’ll continue to hold LLY as my Pharma play.