In a lackluster year for stocks, health care proved to be one of the best sectors, a big reason why iShares U.S. Healthcare (IYH) is now among the best ETFs.
IBD’s medical sector is up more than 14% this year, second only to the software sector. Thirteen of the 35 best-performing industry groups this year are in health care.
The iShares health care ETF itself is up more than 12% this year and trading near all-time highs. Shares are forming a base with a buy point at 204.93. Investors may also use a new move above the 50-day moving average as an aggressive entry.
IShares U.S. Healthcare has nearly 130 components, though it is mainly concentrated on a few large pharmaceuticals.
The largest component is Johnson & Johnson (JNJ), with more than 10% of the $2.46 billion fund. The diversified medical company’s stock is near record highs as it extends a streak of moderate profit and sales growth. J&J faces huge liabilities in litigation over cancer risks from talcum powder. But the stock so far has not suffered because of that risk.
Pfizer (PFE), Merck (MRK), AbbVie (ABBV), Abbott Laboratories (ABT), Amgen (AMGN) and Eli Lilly (LLY) are other top-10 holdings. Most of those stocks also are near 52-week highs, but AbbVie is going through a deep correction.
The No. 2 holding is UnitedHealth Group (UNH), the nation’s largest provider of health coverage. Shares are near new highs, extending an excellent run during the decadelong bull market.
Nearly 32% of the ETF is invested in pharmaceuticals. More than 20% is in medical equipment, 18.5% in biotechs, 12.7% in managed care (such as UnitedHealth) and smaller portions in other health care industries. IBD’s biotech group corrected more than other health care groups this autumn, down as much as 24% and still down 6% for 2018.
“It’s not hard to understand why Health Care has done so well,” Nicolas Colas, co-founder of DataTrek Research, wrote in a note Thursday. “Growth oriented managers have to go somewhere when they sell their Tech holdings. Not many other sectors offer reliable growth.
Long term, the iShares Healthcare ETF has been a solid investment. Through Sept. 30, its average one-year return was 19.37%. Average annual returns for three-year, five-year and 10-year periods were 14.84%, 15.2% and 14.25%.
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