Montana Money: How to Trade the Healthcare Sector with ETFs
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How to Trade the Healthcare Sector with ETFs


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There are numerous industries in the healthcare sector including medical research, pharmaceuticals, generic drugs companies, hospitals, health care plans, biotechnology and more. ETFs are a good way to incorporate the healthcare sector into your portfolio for long term investing. You can also use these ETFs for short term trading. If this sector falls on hard times, you can use inverse ETFs to effectively short the healthcare sector.


The healthcare sector is one stock market sector that has done better than other sectors since the start of the Great Recession of 2008. You can trade the healthcare sector whether the sector goes up or down with ETFs.

Industries in the Healthcare Sector


There are different industries in the healthcare sector from the biotech industry to the long-term care industry. The list of industries in the healthcare sector includes:

  • Biotechnology
  • Drug manufacturing and drug companies
  • Generic drugs
  • Pharmaceuticals
  • Hospitals
  • Health care plans
  • Long-term care facilities
  • Medical research
  • Medical equipment and instruments
  • Medical practitioners
  • Specialized health care services

How to Trade Long or Short the Healthcare Sector


Will the new healthcare laws known as Obama-care be enacted or rescinded and what will this mean for the healthcare sector and separate industries. As the baby boomer generation grows older and retires, certain industries of the healthcare sector are expected to continue to show profits. There are also important questions with the drug industry. Will drug manufactures and generic drug companies be hurt by recalls or profit from an aging population.

Either good or bad news, you can profit with ETFs in the healthcare sector. Shorting stocks in your own portfolio takes a margin account and can be quite risky. If you feel the healthcare sector will have a correction or fall into a bear market, you can short the healthcare sector with shorting or inverse ETFs. And if you believe the healthcare sector will go up, you can profit going long the healthcare sector with ETFs.

You should understand the risks before using inverse and especially leveraged ETFs. If you do not, you can read The Compounding Errors of Leveraged ETFs.

Trading Long the Healthcare Sector ETFs


If you believe the broad healthcare sector of the stock market will go up, the following ETFs can give exposure to the overall healthcare sector which include most if not all of the above industries.

  • iShares S&P Global Healthcare (IXJ) tracks the performance of the S&P Global 1200 Healthcare Sector Index. The top stocks of this ETF include Johnson and Johnson, Novartis, Pfizer, Merck and GlaxoSmithKline.

  • Healthcare Select Sector SPDR (XLV) tries to replicate the Healthcare Select Sector index. Its top holdings include the same companies as IXJ and also Abbot Labs, Unitedhealth Groups, Amgen and Medtronic.

  • Vanguard Health Care (VHT) invests nearly 100% of its assets in the companies of the MSCI US Investable Market Health Care 25/50 Index with its top holdings the same as the above ETFs.

  • iShares Dow Jones US Healthcare (IYH) tracks the Dow Jones US Healthcare Index and its top holding include the same as the above ETFs.

Since these ETFs are so similar, you should look at their performance and the expense ratios of each ETF to help make your decision.

Healthcare Industry Specific ETFs


If you are mainly interested in one of the industries of the healthcare sector instead of the broader sector, these ETFs concentrate more of their holdings in a certain industry of the healthcare sector. For example, if you like the biotechnology industry, but you’re not sure which companies to buy, an industry specific ETF can cover many of the companies in that industry.

Biotechnology ETFs


  • iShares NASDAQ Biotechnology (IBB) invest in companies that are classified as biotechnology and pharmaceutical companies and tracks the NASDAQ Biotechnology Index. Its top holdings include Amgen, Pharmasset, Celgene, Alexion Pharmaceuticals, Gilead Sciences and Biogene Idec.

  • First Trust NYSE Arca Biotech (FBT) tracks the equity index known as the First Trust NYSE Arca Biotech. Its top holdings include some of the same as IBB does and also includes Regeneron Pharmaceuticals, Vertex, Amylin Pharmaceuticals, Affymetrix, Qiagen.

  • PowerShares Dynamic Biotech & Genome (PBE) tracks the Dynamic Biotechnology & Genome Intellidex Index. Its top holdings include some of the same above and also include Life Technologies, Sigma-Aldrich, Waters Corp and Exelixis.

  • SPDR S&P Biotech (XBI) tracks the S&P Biotechnology Select Industry Index with the top holdings like Alexion Pharmaceuticals and Biomarine Pharmaceuticals.

Pharmaceutical ETFs


  • iShares Dow Jones US Pharmaceuticals (IHE) tracks the Dow Jones US Select Pharmaceuticals Index and holds many of the same large pharmaceutical companies as the broader ETFs and also includes Perrigo, Forest Laboratories and Watson Pharmaceuticals.

  • PowerShares Dynamic Pharmaceuticals (PJP) tracks the Dynamic Pharmaceuticals Intellidex Index and holds the same companies as above plus Vivus and Jazz Pharmaceuticals.

  • SPDR S&P Pharmaceuticals (XPH) tracks the S&P Pharmaceuticals Select Industry Index with its top holdings that include Jazz Pharmaceuticals, Questcor, Medicis and ViroPharma.

Specialty Healthcare ETFs


  • iShares Dow Jones US Healthcare Provider (IHF) tracks the Dow Jones US Select Healthcare Providers Index. This index is comprised of healthcare providers including dental, hospitals, health maintenance organizations, nursing homes, eye care and retirement centers. Its top holdings include Wellpoint, UnitedHealth Group, Express Scripts, Medco, Aetna and Humana.

  • iShares Dow Jones US Medical Devices (IHI) tracks the Dow Jones US Select Medical Equipment Index with companies like Medtronic, Covidien, Thermo Fisher Scientific, Intuitive Surgical and St. Jude Medical.

Leveraged Healthcare ETF


  • ProShares Ultra Healthcare (RXL) is a 2x leveraged ETF that tries to replicate 200% of the daily performance Dow Jones US Healthcare Index. 
  • Direxion Daily Healthcare Bull 3x (CURE) seeks daily investment results of 300% of the performance of the Health Care Select Sector Index. 

Shorting or Inverse Healthcare ETFs


  • ProShares UltraShort Healthcare (RXD) is an ETF that seeks 200% of the inverse or opposite of the daily performance of the Dow Jones US Healthcare Index.

  • Direxion Daily Healthcare Bear 3x (SICK) is a 3x leveraged ETF that tries for 300% of the inverse or opposite of the daily S&P Healthcare Select Sector Index performance. This inverse ETF has low volume and can be volatile.

Healthcare Sector ETFs Conclusion


This list of healthcare sector ETFs should give you a good start if you want to trade long or shirt the healthcare sector. To see a complete list of each ETFs holdings and other important information, I recommend either MSNMoney.com or Morningstar.com.

Copyright © September 2011-2014 Sam Montana
 
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Labels: ETFs, healthcare, inverse ETFs, investing, sector ETFs

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