- The oldest Health Sector ETF has outperformed an S&P 500 index fund by 1.90% CAGR over the last 19 years. This Health Sector ETF has also experienced less volatility than an S&P 500 index fund.
- There are currently 35 ETFs in the Morningstar Category called Health. 16 of these funds are 10 years old or older.
- The top performing Health Sector ETF has outperformed an S&P 500 index fund by 8.98% CAGR over the last 12 years.
Health Care Select Sector SPDR® Fund (XLV) vs S&P 500 index fund: January 1999 – September 2018
Source: https://www.portfoliovisualizer.com/
The Deep Value ETF Accumulator rankings for Health Sector ETFs:
Source: https://www.morningstar.com/
The top 4 Health Sector ETFs head-to-head comparison:
FBT vs XBI vs PJP vs IBB: July 2006 through September 2018
Source: https://www.portfoliovisualizer.com/
The top 4 Health Sector ETFs compared with an S&P 500 ETF and the Health Sector elder statesman XLV:
FBT vs XBI vs PJP vs IBB vs XLV vs S&P 500: June 20, 2006 through September 29, 2018
Source: https://www.koyfin.com/home
Pertinents & such on the top 4 Health Sector ETFs:
FBT – The First Trust NYSE Arca Biotechnology Index Fund is an exchange-traded index fund. The investment objective of the Fund is to replicate as closely as possible, before fees and expenses, the price and yield of the NYSE Arca Biotechnology IndexSM. The NYSE Arca Biotechnology IndexSM is an equal dollar weighted index designed to measure the performance of a cross-section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Such processes include, but are not limited to, recombinant DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology, and genomics. The index is rebalanced quarterly based upon closing prices on the third Friday in January, April, July & October to ensure that each component stock continues to represent an approximately equal weight in the index. (Best long-term performance)
XBI – The SPDR® S&P® Biotech ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® Biotechnology Select IndustryTM Index (the “Index”). Seeks to provide exposure to the Biotechnology segment of the S&P TMI, which comprises the following sub-industries: Biotechnology. Seeks to track a modified equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks. Allows investors to take strategic or tactical positions at a more targeted level than traditional sector-based investing. (Lowest correlation to U.S. Stock Market)
PJP – The Invesco Dynamic Pharmaceuticals ETF (Fund) is based on the Dynamic Pharmaceutical Intellidex℠ Index (Intellidex Index). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Intellidex Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value. The Underlying Intellidex Index is comprised of common stocks of 30 US pharmaceuticals companies. These are companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November. (Lowest volatility)
IBB – The iShares Nasdaq Biotechnology ETF seeks to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ. Exposure to U.S. biotechnology and pharmaceutical companies. Targeted access to biotechnology and pharmaceutical stocks listed on the NASDAQ. Use to express an industry view. (Best single year performance)
An exception. When back-testing IBB vs XLV, I discovered that XLV outperforms IBB by 0.70% CAGR. This presented me with a challenge in the ranking process. I opted to leave IBB in the #4 ranking even though XLV did outperform IBB in the longer term back-test. Investors need to be aware that a more broadly diversified Health sector ETF, such as XLV, may outperform Biotech sub-sector ETFs over the long-run. Here is the chart depicting the long-term performance of IBB vs XLV:
IBB vs XLV vs S&P 500: March 2001 – September 2018
Source: https://www.portfoliovisualizer.com/
Pertinents and such on the XLV ETF:
XLV – The Health Care Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index (the “Index”). The Index seeks to provide an effective representation of the health care sector of the S&P 500 Index. Seeks to provide precise exposure to companies in the pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology industries. Allows investors to take strategic or tactical positions at a more targeted level than traditional style-based investing.
Why the Deep Value ETF Accumulator invests in FBT:
- Superior long-term performance (+18% CAGR since inception, 6/19/2006)
- High volatility (+24% standard deviation). Opens up opportunities for great entry points
- Equal weight – with a volatile sub-sector such as biotech, equal weighting can help negate massive draw downs from one major fund component
- Relatively low correlation to U.S. Markets (0.63 correlation coefficient)
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of FBT and intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on Health Sector ETFs from January 2017: Discovering Value in Growth Stock Funds: Biotech ETFs