Investing in the health-care sector has not been easy for Canadians. A Canadian ETF in the sector does not exist. Investing in U.S.-listed ETFs has been possible, but requires assumption of currency risk. However, ETF products recently introduced in Canada have greatly simplified the process.
Many Canadian investors decided last fall that owning U.S.-listed ETFs was worth the currency risk despite a downtrend in the U.S. Dollar Index. The Obama administration successfully passed the U.S. health-care bill that provided coverage for more people. Higher demand for services quickly translated into higher health-care stock prices. Since last September, the S&P Health Care Index has gained 27.8 per cent. In Canadian dollar terms, the Index added 15.4 per cent.
A wide variety of health-care sector and subsector ETFs listed on U.S. exchanges are available. Every major ETF distributor offers a product.
By far the most active U.S.-listed ETF in the sector is the SPDR Health Care ETF . The index consists of the 52 health-care stocks that are part of the S&P 500 Index. Largest holdings are Johnson & Johnson, Pfizer, Merck, Abbott Labs and UnitedHealth Group. Management expense ratio is 0.26 per cent.
The second most active U.S. listed ETF is Merrill Lynch Pharmaceutical HOLDRs . The portfolio holds 20 well known U.S. based health care stocks. A word of caution! The portfolio is concentrated in three stocks that represent 56 per cent of its value: Pfizer, Johnson & Johnson and Merck.
BMO ETFs recently introduced the BMO Equal Weight U.S. Health Care Hedged To CAD Index ETF . The 48 holdings in the portfolio were selected from the Dow Jones U.S. Large Cap Index. Each holding on average has slightly more than a 2.0 per cent weight. Management expense ratio is 0.35 per cent.
The most recent Canadian entry into the sector is the iShares S&P Global Healthcare ETF . The portfolio holds 83 big cap securities. Dominating the portfolio is the 60.4 per cent weight in U.S.-based stocks . The portfolio is designed to replicate the S&P 1200 Health Care Index. Largest holdings are Johnson & Johnson, Pfizer, Novartis, Roche and Merck. Management expense ratio is 0.65 percent.
Seasonal influences currently are favourable for the sector until the first week in June. Thereafter, seasonal influences are neutral until mid-October followed by another period of seasonal strength.
The S&P Health Care Index currently has a positive technical profile. Intermediate trend is up. The index is trading above its 50- and 200-day moving averages. Strength relative to the S&P 500 Index has been positive since mid-February. Short-term momentum indicators currently are overbought, but have yet to show signs of peaking. A word of caution! The index has "gone parabolic," implying the likelihood of higher than average volatility in the weeks ahead.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Inc. Reports are available at www.timingthemarket.ca and www.equityclock.com. Follow him on Twitter @EquityClock.