Top Ranked Healthcare ETFs In Focus [Health Care SPDR (ETF), iShares Dow Jones US Healthcare (ETF)]

healthcare1Healthcare has been one of the top performing sectors of 2013 and this trend is likely to continue this year. This is largely thanks to the robust performances by major drug companies in both the pharma and biotech segments.

The space is clearly benefiting from the ongoing trends such as increasing mergers and acquisition activities, promising new drugs, growing demand in emerging markets, an aging population and ever-increasing healthcare spending. In addition, the Affordable Care Act (often known as Obamacare) – which looks to result in a larger base of insured persons across the U.S. – is driving further growth in the sector.

With expanded healthcare coverage, Obamacare will likely boost revenues for many drug companies in the future, as a large number of Americans would be able to afford medicines.

Further, the Zacks Industry Rank confirms the bullish trend for the space, as healthcare actually has the best Rank for any industry at the time of writing. About three-fifths of industries under healthcare have Zacks Ranks in the top 42%, suggesting solid trading in the coming months.

Given these positive trends, a good way to seek entry into the broad healthcare world is by tilting toward companies in this segment. While there are a number of ways to invest in this surging corner of the market, a look at the top ranked ETFs could be a lesser risky way to tap into the same broad trends (see: all the Healthcare ETFs here).

Top Ranked Healthcare ETF in Focus

We have found a number of ETFs that have the top Zacks ETF Rank of 2 or ‘Buy’ rating in the broad healthcare space and are thus expected to outperform in the months to come.

Among these top ranked ETFs, we pick the following three as good choices to tap into the space. This trio has enjoyed strong momentum in the year-to-date period, and has potentially superior weighting methodologies which could allow these to continue leading the healthcare space in the months ahead:

First Trust Health Care AlphaDEX Fund (FXH)

This is one of the popular and liquid ETFs in the healthcare space with AUM of around $1.6 billion and expense ratio of 0.70%. The fund follows an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, eliminating the bottom ranked 25% of the stocks from inclusion in the benchmark (read: 4 Ways to Play the Bullish Trend in Healthcare with ETFs).

This approach results in a basket of 75 stocks with a definite tilt toward the large caps. Each security holds less than 2.7% of assets, suggesting lower concentration risk of 7.18% (as per Incyte (INCY), Jazz Pharma (JAZZ) and Illumina (ILMN) are the top three elements in the basket.

Health care providers & services is the top sector with nearly one-third allocation, followed by pharma (22.57%) and biotech (19.01%). The ETF has added nearly 5.5% so far this year.

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