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It was another ugly week to have money invested in the healthcare sector as several of the most popular exchange traded funds that specialize in the healthcare stocks ended the week much lower than they started. It was such a rotten week that the best performing healthcare ETF of the group, the iShares Dow Jones US Healthcare Provider ETF (IHF 1.78%), still fell by 1.95% during the last 5 trading days. As bad as of performance as that was it still manage to outperform the S&P 500, which shed 2.76% of its value during the week.
So whats stocks are inside the iShares Dow Jones US Healthcare Provider ETF that allowed it to hold up so well during such market turmoil?
Top holdings
On distinguishing characteristic of the iShares U.S. Healthcare Providers ETF is that its assets are heavily concentrated in just a handful of giant health insurers. While that may make this fund boring to talk about at cocktail parties, a big concentration in such slow and steady businesses helps to keep this ETF volatility down when the market heads south.
| Company | Symbol | % Assets |
|---|---|---|
| UnitedHealth Group | UNH | 13.05 |
| Express Scripts Holdings | ESRX | 8.75 |
| Cigna | CI | 6.38 |
| Aetna | AET | 6.20 |
| Anthem | ANTM | 6.15 |
| Humana | HUM | 5.01 |
| HCA Holdings | HCA | 4.30 |
| Laboratory Corporation of America | LH | 3.31 |
| DaVita Healthcare Partners | DVA | 3.16 |
| Universal Health Services | UHS | 2.93 |
Table Source: iShares
So which of these stocks helped to keep the fund ahead of the S&P 500 this week?
What went right this week
This funds heavy concentration in health insurance stocks paid off in spades this week as six of the funds top 10 holdings ended the week higher than they began.
Anthem's (ELV 1.57%) was a particular strong performer this week. Without any specific news to go off of its clear that investors continue to grow bullish on its pending acquisition of Cigna (CI), which on its own was also a strong performer for the week.
Last week Cigna held a special shareholder meeting that voted on whether or not they would be accepting the terms of the merger agreement with Anthem. Shareholders gave the deal a near unanimous thumbs up, with 99% of the votes that were cast voting in favor of the merger. That same day Anthem shareholders responded in-kind by showing strong support for the acquisition as well. During their special meeting 99% of the votes that were cast were in favor of giving the acquisition the go-ahead.
This deal could prove to be quite lucrative for Anthem, so its no surprise to see its shareholders so excited about its potential. Once this deal closes then Anthem is planning on using Cigna's size to help scale up its Medicare Advantage operations. Anthem isn't a big player in the Medicare Advantage market right now, so adding Cigna into the fold should help it gain a stronger presence in a market thats poised for long term growth, especially when considering the fact that 10,000 baby boomers retire every single day.
The only remaining hurdle that this acquisitions still has to clear is for the authorities to give their stamp of approval. If all goes well then the transaction should close sometime in the later half of 2016.
Safety in a storm
With the markets taking a big step back this week it was nice to see that the IHF was able to hold up so well, especially when considering that this ETF was actually the worst performing ETF in November. But the IHF has bounced back strong and with its concentration on high quality, low volatility healthcare stocks, I think investors in this ETF will quite well over the long run.
