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Number Cruncher

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Number Cruncher

Health care funds: Soothing relief from volatile markets Add to ...

What are we looking at?

A checkup on health care equity funds this year.

This sector, which includes everything from health care providers, insurers and equipment makers to drug and biotechnology firms, is considered a safe haven when markets are volatile.

The screen

We looked how the sector's mutual funds and exchange-traded funds have performed this year to June 16. U.S. dollar, segregated and duplicate versions of these investments were excluded.

What did we find?

Health care equity funds have been holding up well amid stomach-churning stock markets.

BMO Equal Weight U.S. Health Care ETF emerged as the leader this year with a 11.6-per-cent return, and for the year ended May 30 with nearly a 32-per-cent gain. This ETF (ZUH-TSX) tracks a Dow Jones U.S. large-cap health care index.

TD Health Sciences and RBC Global Health Sciences, respectively, trailed closely with 11.1-per-cent and 10.3-per-cent returns.

The BMO health care ETF benefited from the fact that its U.S. dollar exposure is also hedged to Canadian dollars, and was not affected by the loonie's strong runup this year, said Alfred Lee, an investment strategist with BMO ETFs. "Managers who did not hedge during those during those months have been facing a currency headwind."

Individual stocks did not make a big impact on the portfolio because each of the nearly 50 names has an equal weighting. This index strategy, he said, enables investors get exposure to the sector without taking on a lot of risk.

Among the stocks, the biggest outperformers this year included health insurers Humana Inc. and Aetna Inc., both up 43 per cent, and biotechnology company Biogen Idec Inc., up 39 per cent.

The health care sector, as measured by the S&P 500 health care sector subindex in Canadian dollars, has gained 8.5 per cent this year, and outpaced the broader U.S. market, which is flat, and the Canadian market, which has fallen into the red.

Investors who "have been paring down risk" amid the volatile markets have rotated into the sector, while stocks of companies such as Aetna have been helped by delivering a first-quarter profit that has been "way above expectation," Mr. Lee added.

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