Emerging Markets To Drive Healthcare ETFs (IXJ, IHE, VHT, UBS, LLY, ABT)

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August 26, 2010 4:57pm NYSE:IHE NYSE:IXJ

As emerging markets continue to grow and affluence rises, the developing world is likely to be the driving force behind growth in the global health care sector paving the path to opportunity in the


 iShares S&P Global Healthcare Sector Index Fund (NYSE:IXJ), the iShares Dow Jones US Pharmaceuticals Index Fund (NYSE:IHE) and the Vanguard Health Care ETF (NYSE:VHT).

A report released by UBS (NYSE:UBS) indicates that developing nations are expected to account for $550 billion of annual drug sales per year by 2020, accounting for more than 70% of all drug sales growth and pushing China and Brazil ahead of France, England and Germany when it comes to market size. 

A major diver behind this expected growth is per-capita GDP.  Nations like China, India, Brazil, Russia, South Korea, Turkey and Mexico are expected to see per-capita GDP increase by about 6.9% annually over the next 10 years.  History dictates that there is a direct correlation with a nation’s GDP growth and health-care expenditures within that nation.  As wealth increases, the amount spent on health-care follows. 

Secondly, the governments in developing nation are focusing on health-care and providing a better life for their citizens by increasing health insurance coverage.  In China, the government is aiming to provide health insurance to nearly 95% of its citizens and plans to spend nearly $125 billion on improving health-care over the next year alone.  Additionally, in India, the Prime Minister launched a plan this year which would add 250 hospitals to tier II towns and non-urban cities. 

This trend is so prevalent that in a recent report, pharmaceutical giant, Eli Lilly (NYSE:LLY), announced that it plans on doubling its sales in developing markets over the next five years through the promotion of its drugs and potential strategic acquisitions.  Lilly has already started to make a footprint in China through its venture capital arm, Lilly Ventures, which started a $100 million fund that invests in Chinese life sciences companies.  Also for other big players in the healthcare world, Abbott Laboratories (NYSE:ABT) made its push into emerging markets with its acquisition of Indian drug company Piramal Healthcare, which has the largest drug sales force in India, earlier this year. 

As noted earlier some ways to play the anticipated growth of health care in emerging markets includes:

  • iShares S&P Global Healthcare Sector Index Fund (NYSE:IXJ), which allocates 77.7% of its assets to pharmaceuticals and 21.85% to the healthcare equipment and services sector.
  • iShares Dow Jones US Pharmaceuticals Index Fund (NYSE:IHE), which is a pure play on global pharmaceutical companies, allocating 7.22% of its assets to Abbott Laboratories and 5.34% to Eli Lilly.
  • Vanguard Health Care ETF (NYSE:VHT), which allocates 43.3% of its assets to pharmaceuticals, 17.1% to health care equipment, 14.8% to biotechnology and 7.1% to managed health care. 

Some risks to consider when dealing with the aforementioned ETFs include less robust than expected per-capita GDP growth in emerging markets and counterfeiting of health-care products, a threat that has prevailed in numerous emerging nations previously.  A good way to protect against these risks is by utilizing an investment strategy which protects downside risk.  Such a strategy can be found at http://www.smartstops.net/.

Written By Kevin Grewal from Smart Stops  Disclosure: No Positions

Kevin Grewal serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton.


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