The health care sector spent much of 2018 as the strongest performer across the market. However, as the general market pulled back sharply toward the end of the year, many of the typically-stalwart health care names did as well. The slowing of corporate earnings, concerns about a trade war with China, rising interest rates and other geopolitical concerns all contributed to the sell-off toward the end of the year. Still, health care ended the year in a much better position than many other sectors, and savvy investors were nonetheless able to capitalize off of the relative success of this area in 2018.
For investors looking to take part in the health care sector, one of the easiest and most popular options is an exchange-traded fund (ETF). ETFs offer broad exposure to a number of different stocks at the same time, with funds on offer that focus on the entire sector or on various subcategories as well. Given the popularity of the health care sector ETF space and the relative success of this corner of the financial world, there were several health care ETFs which were among the top performing ETFs overall for 2018. Below, we’ll take a closer look at the top five performers out of the health care ETF subcategory. We’ll also compare these ETFs’ performance to that of the S&P 500 Health Care Index 3.4% returns benchmark.
1. iShares U.S. Medical Devices ETF (IHI)
2. ProShares UltraShort Nasdaq Biotechnology ETF (BIS)
3. iShares Evolved U.S. Healthcare Staples ETF (IEHS)
3. iShares U.S. Healthcare Providers ETF (IHF)
5. Invesco S&P SmallCap Health Care ETF (PSCH)
iShares U.S. Medical Devices ETF
The iShares U.S. Medical Devices ETF (IHI) was the strongest performer among all health care-focused ETFs for 2018. IHI returned 13.6% for the year, placing it among the best ETFs across all sectors. This fund targets companies which focus on medical devices. It tracks a market-cap-weighted index of roughly 50 companies and has a strong bias toward distribution and supply companies. Although it is slightly more expensive than some of its competitor health care funds, it makes up for that with a strong average spread of 0.09% as well as good liquidity overall.
IHI was launched in May of 2006 and carries an expense ratio of 0.43%. It is a sizable fund with $2.53 billion in assets under management.
ProShares UltraShort Nasdaq Biotechnology ETF
The second spot on our list of top performing health care funds for 2018 goes to a leveraged inverse exposure fund, the ProShares UltraShort Nasdaq Biotechnology ETF (BIS). BIS returned 10.9% overall for 2018. However, as this fund is compounded daily in order to attempt to provide -2x exposure to an index of biotechnology companies listed on the Nasdaq, it is somewhat artificial to look at its performance over spans larger than a single day. Most investors will trade this fund within a one-day period. Still, BIS offers an enticing package for investors looking to bet against biotech and pharmaceuticals companies.
BIS was launched in April of 2010 and carries an expense ratio of 0.95%. It is a small fund, with just over $30 million in its asset base as of this writing.
iShares Evolved U.S. Healthcare Staples ETF
Returning 8.55% over the course of 2018, the iShares Evolved U.S. Healthcare Staples ETF (IEHS) is tied for third place in our ranking. This fund tracks an index of U.S. health care stocks classified as such by the iETF Evolved Sector method of categorization. In essence, this means that IEHS focuses on a smaller subsection of the traditional health care sector and specifically on companies which lie on the border between health care and consumer discretionary classifications.
IEHS was launched in March of 2018 and carries an expense ratio of 0.18%. As a relatively new fund, it has under $4 million in assets under management. As of this writing, its largest holdings are UnitedHealth Group, Medtronic and Abbott Laboratories.
iShares U.S. Healthcare Providers ETF
Also tied for third place with an overall return of 8.55% during 2018 is the iShares U.S. Healthcare Providers ETF. Like its fellow iShares fund above, IHF focuses on U.S.-based health care companies. However, IHF distinguishes itself by tracking a cap-weighted index of companies and focusing on the largest names in managed health care, insurance and facilities. This means that IHF does not include pharmaceuticals companies for the most part, while it does include health insurance companies which don’t regularly appear in other similar funds. Generally, IHF offers broadly diverse exposure to this specialized segment of the health care sector, and it enjoys strong liquidity and small spreads.
IHF was launched in May of 2006 and carries an expense ratio of 0.43%. It has nearly $797 million in assets under management as of this writing.
Invesco S&P SmallCap Health Care ETF
With returns of 8.3% for the year 2018, the Invesco S&P SmallCap Health Care fund (PSCH) is the fifth-best performer in this category. PSCH follows a market-cap-weighted index of small-cap health care companies, all of which are drawn from the S&P SmallCap 600 Index. More than 75% of the fund is set aside for names with a market cap of $2.7 billion or less. This means that PSCH is not a good representation of the health care sector at large, but it offers a strong approach to the small-side niche. PSCH tends to focus on health care equipment and provider companies.
PSCH was launched in April of 2010 and carries an expense ratio of 0.29%. It has just over $722 million in assets under management.