Health Care Sector 2Q17: Best and Worst

The Health Care sector ranks sixth out of the ten sectors as detailed in our 2Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Health Care sector sixth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 23 ETFs and 91 mutual funds in the Health Care sector as of April 6, 2017. See a recap of our 1Q17 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Health Care sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 362). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Health Care sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Our robo-analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Saratoga Health & Biotechnology Portfolio (SBHIX) and ICON Healthcare Fund (ICHCX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Fidelity MSCI Health Care Index ETF (FHLC) is the top-rated Health Care ETF and Schwab Health Care Fund (SWHFX) is the top-rated Health Care mutual fund. Both earn an Attractive rating.

BioShares Biotechnology Products Fund (BBP) is the worst rated Health Care ETF and Prudential Jennison Health Sciences Fund (PHLAX) is the worst rated Health Care mutual fund. Both earn a Very Dangerous rating.

340 stocks of the 3000+ we cover are classified as Health Care stocks, but due to style drift, Health Care ETFs and mutual funds hold 362 stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our robo-analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Health Care ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

This article originally published on April 7, 2017.

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

Click here to download a PDF of this report.

Leave A Response

* Denotes Required Field