The U.S. health care sector was a star performer in 2013. It remained a favorite among investors in spite of the uncertain economic climate worldwide. New product launches, solid earnings results and increasing merger & acquisition activities were the major drivers for this sector.
Moreover, the pharmaceutical sector has seen one of the worst patent cliffs in recent times. Although genericization will continue in 2014, the major patent expiries are almost over.
The sector will continue to benefit from new product launches, pricing power, cost cutting strategies, in-licensing deals with major companies and growing presence in emerging markets.
Also, as the Fed has already begun dialing back its monetary stimulus policy with more to come, the sector might continue to be a good defensive bet for investors looking to withstand the volatility in the market.
A bunch of ETFs within the Health & Biotech equities have already posted solid returns since the start of the year, clearly outpacing flat returns by the broader market index S&P 500 in the same time frame.
SPDR S&P Biotech ETF (XBI), Dynamic Biotech &Genome (PBE) and Nasdaq Biotechnology (IBB) have all clocked returns exceeding 10% this year.
Given the bright future prospects of health care, a look at one of the top ranked ETFs in the space could be the way to target the best of the segment with lower levels of risk (Read: Healthcare ETFs in Focus on JNJ Beat).
About the Zacks ETF Rank
A look at top ranked health care ETFs can be done by using the Zacks ETF Rank. This technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors as well.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found one ETF Ranked 2 or ‘Buy’ in the health care sector – SPDR S&P Pharmaceuticals ETF (XPH) – which we have highlighted in greater detail below.