ETF Update: A Focus on Health

Growing strength in health care sectors is the dominant theme in this week’s ETF Update. As usual, there are also some interesting implications for the overall market.

We noted the rise of these sectors in last week’s ratings, observing that the market continued to “play defense.” (For new readers tThere is a further explanation of our approach at the end of the article).

Health Care

Moving up into the “buy range” this week is the iShares S&P Global Healthcare Sector Index Fund (IXJ). The top five holdings reflect large-cap pharma, but constitute only 32% of the fund. The P/E ratio is under 20 and the beta only 0.43.

Mike Havrilla points out that most of the health care funds trade at low prices. He writes as follows:

Despite concerns over the health of the domestic economy along with surging food and energy prices, the healthcare sector has failed to garner investor interest as a safe haven. Most healthcare exchange-traded funds [ETFs] and drug stocks continue to languish near multi-year lows, despite an aging Baby Boomer population and ever-increasing proportion of the gross domestic product [GDP] accounted for by healthcare spending.

He also likes the balance in the top ten holdings with a split between the U.S. and Europe.

Gary Gordon suggests that concerns over government-mandated health care may be weighing on these sectors. Our own guess is that some health care stocks will benefit from broader benefit plans, but it is too soon to figure out which ones.

To summarize, these sectors are gaining some interest as money moves away from the energy and basic material sectors. They are defensive and trading at relatively low prices, perhaps because of political concerns.

Weekly TCA-ETF Rankings

We added three positions last week, all in the pharmaceutical and health care sectors. The bottom sectors continue to be financial issues. There is another interesting feature. Several of the recent winners have plummeted in the rankings. These include KOL, MOO, and various energy ETF’s that we recently held. It shows what can happen in the intermediate term when money pours out of a sector.

It is still a very defensive picture. The model shift to inverse ETF’s was a drag on our position this week, but the addition of the health care holdings helped. Most sectors are still in the “penalty box.” Using the model as our guide, we have continued our multi-week bearish posture in the Ticker Sense blogger sentiment poll.

Listed below are the week’s rankings and our trades:


Originally published at A Dash of Insight and reproduced here with the author’s permission.