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2 Healthcare ETFs To Consider As Delta Cases Surge

Published 05/08/2021, 09:51

The increase in global cases of the Delta variant has meant increased volatility for many stocks. Yet, broader indices keep making new highs. So far in the year, the Dow Jones Industrial Average, the S&P 500, as well as the tech-heavy NASDAQ 100 indexes are all up: around 14.5%, 17.5% and 16.5%, respectively.

How this strain of the virus could impact equities during the rest of the summer is hard to predict. While most analysts agree continued choppiness is likely, others debate whether a full-blown crash could also be in the cards.

Given the nature of the pandemic, the healthcare industry has been uniquely affected since early 2020. COVID-19 has imposed significant challenges on healthcare systems. Yet, the industry has responded by bringing technological advances, as well as innovations, including vaccines and other medicines. Understandably, innovation drives growth, and shares of innovative companies typically see significant returns.

Recent research by Deloitte highlights:

“The COVID pandemic will have a longer-term impact on health-care systems, that should be addressed by political and health-care authorities as soon as possible.”

Put another way, healthcare stocks will likely continue to make headlines in the rest of the year, too.

Today, we discuss two exchange-traded funds (ETFs) that focus on the industry.

1. Health Care Select Sector SPDR Fund

Current Price: $133.60
52-Week Range: $100.31 - $134.47
Dividend Yield: 1.33%
Expense Ratio: 0.12% per year

The Health Care Select Sector SPDR® Fund (NYSE:XLV) invests in biopharma names as well as those that manufacture life sciences and health-care equipment and supplies.

XLV Weekly

XLV, which has 64 holdings, tracks the returns of the Health Care Select Sector Index. The fund started trading in December 1998.

In terms of the sub-sectoral breakdown, the healthcare equipment and supplies sector makes up the highest portion, with 27.95%, followed by the pharmaceuticals, and healthcare providers and services sectors, with 27.72% and 19.62%, respectively.

The top 10 holdings account for almost half of net assets of $32.8 billion. Johnson & Johnson (NYSE:JNJ), UnitedHealth (NYSE:UNH), Pfizer (NYSE:PFE), Abbott Laboratories (NYSE:ABT) and AbbVie (NYSE:ABBV) lead the names in the roster.

Over the past year, the fund is up about 24% and hit a record high in recent days. We believe the macro economic backdrop for the healthcare industry remains bullish.

In addition to the pandemic, the aging US population and individuals’ desire to live longer and healthier provide significant tailwinds for many biopharma names. According to the Population Reference Bureau, “The number of Americans ages 65 and older is projected to nearly double from 52 million in 2018 to 95 million by 2060.”

Those investors who want access to large-cap US healthcare stocks should consider buying the dips in the fund.

2. iShares US Healthcare Providers ETF

Current Price: $271.74
52-Week Range: $188.81 - $275.60
Dividend Yield: 0.51%
Expense Ratio: 0.42% per year

The iShares US Healthcare Providers ETF (NYSE:IHF) gives exposure to companies that provide health insurance, diagnostics and specialized treatment. The fund started trading in May 2006.

ILF Weekly

IHF, which has 62 holdings, tracks the returns of the Dow Jones US Select Health Care Providers Index. The managed healthcare sub-sector has the highest slice, with 45.36%. Next in line are the healthcare services and healthcare facilities sub-sectors, with 33.72% and 12.21%, respectively.

The fund’s top 10 holdings comprise 72% of net assets of $1.2 billion. UnitedHealth, CVS Health (NYSE:CVS), Anthem (NYSE:ANTM), Humana (NYSE:HUM) and Centene (NYSE:CNC) lead the names in the fund.

Over the past year, the fund is up about 32%, and saw a record high in late May. The US currently spends 16.89% of its gross domestic product (GDP) on healthcare—the highest percentage compared with other countries around the globe. As a result, IHF remains a solid long-term investment choice for many retail investors.

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