These three healthcare ETFs are benefiting from strong trends and give investors a low-risk way to profit from blockbuster drugs
Healthcare stocks started the year off very strongly as investors cheered the sector’s advances. Among the sector’s catalysts have been continued, strong enthusiasm for a new class of weight-loss drugs called GLP-1 and Nvidia’s decision, disclosed earlier this month, to invest in a medical imaging company and a firm that uses artificial intelligence (AI) to speed up the drug discovery process.
However, many healthcare companies are extremely risky and volatile. That’s because start-up drug makers can easily go bankrupt if one or more of their treatments perform poorly in clinical trials. By investing in healthcare ETFs, investors can prevent large portions of their funds from disappearing. Since ETFs invest in many stocks, they won’t plunge if one or two of the companies in which they invested decide to declare bankruptcy. Further, many of these ETFs hold the shares of relatively safe healthcare firms such as “providers and equipment” makers while also giving investors a chance to benefit from drug discoveries and other, strong catalysts within the space.
If that combination sounds appealing to you, here are three of the hottest healthcare ETFs to buy.
Health Care Select Sector SODR Fund (XLV)
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The Health Care Select Sector SPDR Fund (NYSEARCA:XLV) has gained 8% so far in 2024, and Investor’s Business Daily gives the name an Accumulation/Distribution Rating of B, showing that a meaningful number of large institutions have been accumulating significant amounts of the ETF in the last 13 weeks.
The ETF’s largest holding, accounting for nearly 10% of its value, is drug maker Eli Lilly (NYSE:LLY) — one of the hottest stocks in the U.S. On Feb. 6, LLY reported blowout fourth-quarter results, driven by the runaway success of its weight-loss drugs, Mounjaro and Zepbound. Specifucally, the firm’s top line jumped 28% versus the same period a year earlier, while its net income climbed 13% year-over-year.
XLV’s fourth-largest holding is Merck (NYSE:MRK), which owns Keytruda, an anti-cancer treatment that is one of the most valuable drugs of all time. Last quarter, for example, Keytruda’s sales jumped 21% versus the same period a year earlier to a huge $13.14 billion. “Merck cited increased global uptake in earlier-stage cancers, especially in triple-negative breast cancer, as a key growth driver for the immunotherapy,” Precision Medicine noted earlier this month. Merck accounts for nearly 6% of the fund’s overall holdings.
In eighth place on XLV’s list of holdings is another huge drug maker, Amgen (NYSE:AMGN). The firm is developing two anti-obesity drugs of its own. As I noted in a previous column, “One of these treatments is an oral drug, giving it an important advantage over most of the other GLP 1 drugswhich are injected.” AMGN stock accounts for 3.2% of the fund’s holdings.
VanEck Pharmaceutical ETF (PPH)
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The VanEck Pharmaceutical ETF (NASDAQ:PPH) has surged 11% so far this year. As its name indicates, all of its holdings are drug makers.
Investor’s Business Daily gives PPH a high Accumulation/Distribution score of B+, indicating that many institutions have been buying a significant amount of the shares over the last 13 weeks.
As was the case with The Health Care Select Sector SPDR Fund, Eli Lilly is PPH’s largest holding and accounts for nearly 10% of the funds total assets. As I mentioned in the section on the Health Care Select Sector SPDR Fund, Eli Lilly’s top and bottom lines are climbing tremendously as a result of the success of its weight-loss drugs.
PPH’s second-largest holding, Novo Nordisk (NYSE:NVO), accounts for nearly 8% of its assets and is getting even a bigger lift from its weight-loss drugs than Lilly. Specifically, the drugs enabled NVO to increase its sales by a large and very impressive 31% last year.
In tenth place on PPH’s list of holdings is GSK (NYSE:GSK) which accounts for 4.5% of its assets. As I noted in several of my earlier columns, the company’s cancer drugs have been performing well in clinical trials, while the revenue generated by its RSV vaccine has been quite impressive.
Global X Aging Population ETF (AGNG)
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As I reported previously “the number of those 65 and older in the U.S. jumped 38.6% between 2010 and 2020 to 55.8 million. And in 2040, when the members of Generation X will have reached retirement age, 80 million Americans are expected to be 65 and older.”
Consequently, the Global X Aging Population ETF (NASDAQ:AGNG), which owns many healthcare stocks that cater to elderly Americans, is a great pick for long-term investors.
The ETF has been performing well recently, as it has climbed nearly 4% so far this year and 20% since bottoming in October.
The ETF’s top holding and its number three holding are Eli Lilly and Novo Nordisk which have both benefited tremendously from their weight-loss drug, as I noted earlier in this column. Numbers five, seven and nine on its list of holdings are medical device makers Boston Scientific (NYSE:BSX), Stryker (NYSE:SYK), and Medtronic (NYSE:MDT). Over the long term, these firms should all benefit tremendously from the aging of America.
On the date of publication, Larry Ramerdid not hold (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.
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