By ETF Heat Map Team

The cumulative performance of health care sector exchange traded funds (ETFs), based on a 5 year return, has been getting slightly weaker compared to last year; however, this has not stopped certain individual healthcare ETFs from being overwhelmingly represented and ranked highly within the group of top 10 best performing ETFs. This evidence signals that individual ETFs can still out perform their respective declining sectors, and investors should always perform extensive due diligence to further explore which underlying securities and financial instruments make up each ETF.

It seems that with the increasingly sophisticated ETF offerings, investors can make money whether the market goes up or down. Hedge fund managers and other active managers have long been proud of their ability to beat the market in any sort of volatile condition; however, it seems that strategic ETF investors can now also share in those gains by taking a bullish (bearish) long and short hedging positions using ETFs.

Other top spots for the best performing ETFs were rewarded to the consumer cyclical, consumer discretionary, and long-term Treasury ETFs. Health care ETFs have increased 15.3 percent on average on an annualized basis over the last 5 years. Despite individual personal healthcare ETFs dominating the top ten list of best performing ETFs, the health care sector as a whole is now underperforming the homebuilders sector. Over the past 5 years on an annualized basis, the home builders sector gained 15.6 percent on average. Following the positive homebuilders’ sector lead, long term government bond category and consumer staples sectors also increased 13.7% and 13.9 percent, respectively, over the past 5 years.

Whenever the economy is strengthening and interest rates remain favourable, the homebuilders sector seems to perform well. On the other hand, the health care sector is immune to economic cycles as citizens tend to perpetually demand healthcare services year round, and require health care during both good and bad economic times. Certain outliers and over achievers in the healthcare sector represented by ETFs focused on topics such as biotechnology, baby boomers, and affordable and accessible healthcare insurance has helped to keep the healthcare sector performing well.

The top ten performing ETFs worth reviewing, as per the American Association of Individual Investors (AAII) August 2016 report, include:

  • IBB – iShares Nasdaq Biotechnology ETF with a 5-year market return of 19.5%
  • RHS – Guggen. S&P 500 Eq. Weight Consumer Staple ETF with a 5-year return of 17.8%
  • ZROZ – PIMCO 25+ Year Zero Coup U.S. Treasury with a 5-year market return of 17.7%
  • ITB – iShares U.S. Home Construction with a 5-year market return of 17.4%
  • XLV – Health Care Selected Sector SPDR with a 5-year market return of 17.1%
  • VHT – Vanguard Health Care ETF with a 5-year market return of 17.0%
  • IYH – iShares U.S. Healthcare with a 5-year market return of 16.8%
  • EDV – Vanguard Extended Duration Treasury with a 5-year market return of 16.7%
  • RYH – Guggenheim S&P 500 Eq. Weight Health Care with a 5-year return of 16.5%
  • IHE – iShares U.S. Pharmaceuticals (healthcare) with a 5-year market return of 16.2%

The VHT, EDV, and XLV ETFs had the lowest expense ratios of 0.09, 0.10, and 0.14, respectively. In comparison, the IBB, ITB, and RHS ETFs had higher expense ratios of 0.48, 0.43, and 0.40, respectively. Investors should remember that past (historical) performance is not necessarily indicative of future performance. In the past five years, the total assets under management represented by all exchange traded products went from $960 billion (USD) to $2.3 trillion (USD) as of June 30, 2016.


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