Should You Invest in the Select Healthcare Sector SPDR ETF (XLV)?
Should You Invest in the Select Healthcare Sector SPDR ETF (XLV)?

If you’re interested in broad exposure to health care — a broad segment of the stock market — look no further than the Health Care Select Sector SPDR ETF (XLV), a passively managed exchange-traded fund launched on 12/16/1998.

Passively managed ETFs are becoming increasingly popular among institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent funds for long-term investors.

In addition, sector ETFs offer convenient ways to obtain low-risk and diversified exposure to a broad group of companies in specific sectors. Healthcare – Broad is one of 16 Zacks Broad Sectors in the Zacks Industry Classification. It is currently ranked 4, which puts it in the top 25%.

Index details

The fund is sponsored by State Street Global Advisors. It has amassed more than $40.95 billion in assets, making it the largest ETF trying to track the performance of Healthcare, a broad segment of the stock market. XLV seeks to match the performance of the Health Care Select Sector Index before fees and expenses.

The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; healthcare and service providers; healthcare equipment and supplies; biotechnology; life sciences tools and services; and healthcare technologies.

Expenses

Expense ratios are an important factor in ETF returns, and over the long term, cheaper funds can significantly outperform their more expensive counterparts, other things being equal.

Annual operating expenses for this ETF are 0.09%, making it one of the cheapest products in the space.

It has a trailing 12-month dividend yield of 1.51%.

Sector exposure and largest holdings

It’s important to delve into ETF holdings before investing, despite the many advantages of these types of funds, such as diversified exposure that minimizes the risk of individual stocks. And most ETFs are very transparent products that disclose their holdings daily.

This ETF has the largest allocation to the healthcare sector, about 100% of the portfolio.

Looking at individual holdings, Unitedhealth Group Inc ( UNH ) accounts for about 9.85% of total assets, followed by Eli Lilly + Co ( LLY ) and Johnson + Johnson ( JNJ ).

The top 10 holdings account for about 53.88% of total assets under management.

Performance and risk

XLV has gained about 7.03% so far this year and is up about 17.36% in the last one year (as of 03/25/2024). Over the past 52-week period, the fund has traded between $123.14 and $147.86.

The ETF has a beta of 0.66 and a standard deviation of 14.21% over the past three-year period, making it a medium-risk pick in the space. With around 66 holdings, it effectively diversifies company-specific risk.

Alternatives

The Health Care Select Sector SPDR ETF holds a Zacks ETF Rank 1 (Strong Buy), which is based on the asset class’ expected return, expense ratio and momentum, among other factors. XLV is therefore an excellent option for investors seeking exposure to the healthcare ETF market segment. There are other additional ETFs in the space that investors could also consider.

The iShares Global Healthcare ETF (IXJ) tracks the S&P Global 1200 Healthcare Sector Index and the Vanguard Health Care ETF (VHT) tracks the MSCI US Investable Market Health Care 25/50 Index. IShares Global Healthcare ETF has $4.07 billion in assets, Vanguard Health Care ETF has $17.91 billion. IXJ has an expense ratio of 0.42% and VHT charges 0.10%.

Bottom row

To learn more about this product and other ETFs, browse products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit the Zacks ETF Center.

Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report

Select Healthcare Sector SPDR ETF (XLV): ETF Research Reports

UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Johnson & Johnson (JNJ) : Free Stock Analysis Report

Eli Lilly and Company (LLY) : Free Stock Analysis Report

Vanguard Health Care ETF (VHT): ETF Research Reports

iShares Global Healthcare ETF (IXJ): ETF Research Reports

To read this Zacks.com article, click here.

Zacks Investment Research

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *