Financial and Healthcare Sector ETFs Leading In Inflows

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August 5, 2013 1:54pm NYSE:IYH NYSE:XLF

money flowingDespite sluggishness in most, investments in a few industries have been quite rewarding over the past few months. Funds tracking such industries have witnessed tremendous asset accumulation driven by growing investor confidence.


Among them – financials and healthcare – deserve a special mention as both raised their heads high against the overall unimpressive trend. Below, we highlight two of the biggest winners belonging to the above-said sectors which saw massive inflows over the past week ending July 26, 2013.

XLF Representing the Financials Sector

Leveraging the utmost bullish trend in financial sector, Financial Select Sector SPDR Fund (NYSEARCA:XLF) gathered$387.8 million during the week ended July 26. With this, the fund has now amassed as much as $17.1 billion and has retained the status of the most popular and liquid ETF in the financial equities space. The fund was among the top 10 asset creators for the week. XLF holds 81 financial securities, mostly large cap.

Not only this, XLF has been one of the top investor choices even in the first half of the year hauling in around $3.4 billion. Actually, of late, the financial sector has gathered strength and has been a leading light in the ETF industry. The outlook for the sectors benefited from steeper yield curve and the shift towards cyclical sectors from the defensive ones. Further, financials have been driving most of the earnings growth for the S&P 500.

The sector also has relatively modest valuations that are attracting investments. The recent uptrend in long-term interest rates after so much of the ‘Taper’ related talks helped the operating backdrop for the sector quite a bit (read: 3 Sector ETFs to Profit from Rising Rates). A very low expense ratio also helped XLF to attract investor attention.

IYH Representing the Healthcare Sector

While XLF occupies the sixth rank in top asset creation, iShares Dow Jones US Healthcare ETF (NYSEARCA:IYH) catering to the Healthcare sector comes the very next. IYH grabbed $353.5 million in the said week to reach $1.41 billion in AUM.

Although IYH does not trade in a great volume, it is not too expensive as it charges a fee of 46 basis points which is in line with the average expense ratio of Health & Biotech Equities ETFs. Holding a total of 113 assets, the fund is skewed to large-cap stocks.

Despite uncertainties with regards to the implementation of the Affordable Care Act, the healthcare segment has been soaring higher this year thanks to strong performances by major drug companies in both the broad pharma space and in the biotech industry (Read: Will Obamacare Happen Smoothly?).

Further, thanks to its defensive nature, the Healthcare sector has the ability to draw investor attention

during global downturns. The aging population and higher rates of chronic disease, growing demand in emerging markets and new product launches are other positives for the sector. Further, the pharmaceutical industry is showing signs of recovery from one of the biggest patent cliffs in recent times.

In such a scenario, IYH – one of the largest ETFs in the space – seemed to be an interesting option for investors and they chose to pour substantial money into it.

Bottom Line

The substantial asset inflow in both XLF and IYH indicates that investors do not wish to miss out on a single opportunity to profit  — whether it is a cyclical sector like Financials or defensive sector like Healthcare. Both the ETFs XLF (40.7%) and IYH (34.3%) outperformed the S&P 500 index (21.6%) in terms of returns.

While the financial sector is playing on broader market momentum and ‘Taper talks’ and expected to continue the upward ride at least in the near term, the health care sector  is a sector which will always remain in demand regardless of any policy changes thanks to the increasing demand for new treatments and drugs for a variety of illnesses.

This article is brought to you courtesy of Eric Dutram.


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