Investors in healthcare should look deeper into subsectors: biotechnology, devices, diagnostics, drugs and tools
As of December 15 the S&P was up 12.94% but the healthcare sector was the laggard up only 0.43%. Compare this to the leaders Consumer Discretionary up 24.34%, Industrials up 21.81% and Materials up 14.9%; healthcare represents 11.17% of the S&P. But there are many sectors within “healthcare” that are doing quite well if we look at subcategories that are really “technology” such as medtech and biotech. Many life Science stocks have soared in 2010: Alexion (ALXN), Exelixis (EXEL) Illumina (ILMN) and Neogen(NEOG) , The broad category labeled healthcare underperformed in 2010. The Healthcare component of the S&P overweights large cap drug and biotech stocks like Abbott (ABT), Amgen (AMGN) Merck(MRK) and Pfizer (PFE) that have underperformed other S&P sectors. Here is a summary of several healthcare ETF’s that have outperformed compared to the S&P YTD:
- IBB iShares Nasdaq Biotechnology up 13.3% YTD
- IXJ iShares S&P Healthcare Sector ETF up 0.56% YTD
- Morgan Stanley Healthcare Index-24 large cap (^RXP) up 5%
- PJP Power Shares Dynamic Pharmaceuticals ETF up 28.29% YTD
- XBI-SPDR Biotech ETF up 16.14% YTD
- XLV-SPDR Healthcare Select up 2% YTD
- XPH-SPDR Pharmaceuticals up 23.92% YTD
All of these subcategories of healthcare including “life sciences” have a broad performance range of 0.56% to 28.3%. So when investors or pundits talk about healthcare stocks you need to look at each ETF or Index with respect to not only the compoents but a wide range of styles:
- Turnover and trading
- Growth vs value
- Small cap vs large cap selection
- Inclusion of device,diagnostic and life science tools stocks
- Volatility and Beta
Earlier this month we reviewed biotech ETF’s and large cap drug stocks. Drug stocks are beginning to attract value and dividend seekers and our three –Abbott (ABT), Bristol Myers(BMY)and Novartis (NVS) -picks as well as our ETF pick FBT are up about 3% in two weeks. Seasonality through the end of January is quite favorable for biotech and smaller cap stocks and the trend appears to be on track.
The important point with respect to biotech investing is to be diversified and look for companies and market trends within each subsector. Whether you are a stock picker or ETF player there are more choices than ever under the broad label of “healthcare” or “biotech”.
Raygent » Play the Biotech Sector with ETF’s: FBT, IBB and XBI
Raygent » Rayno Life Science Portfolio:Dx and Tools Update 12/15/10