Image by Tax Credits via Flickr
2016 is only a few trading days old, but its already been a rough year for the markets. Indices around the world were sold off very hard this week and many exchange traded funds that focus on the healthcare space were hit particularly hard. In fact, it was such a dreadful week for healthcare focused ETFs that the best performer of the week -- the iShares Dow Jones US Healthcare Provider (IHF 1.78%) -- was still down by nearly 5%! About the only good thing you can say about a rotten performance like that is that it faired better than S&P 500.
So what's going on inside the iShares Dow Jones US Healthcare Provider that allowed it to hold up better than the S&P 500 this week?
Cracking it open
One distinguishing feature of this ETF is that the majority of its assets are held in just a handful of giant health insurers. A quick glance at this funds top holdings is quite telling:
| Company | Symbol | % Assets |
|---|---|---|
| UnitedHealth Group | UNH | 12.59 |
| Express Scripts Holding Company | ESRX | 8.68 |
| Cigna | CI | 6.83 |
| Aetna | AET | 6.53 |
| Anthem | ANTM | 6.39 |
| Humana | HUM | 5.26 |
| HCA Holdings | HCA | 4.37 |
| Laboratory Corporation of America | LH | 3.16 |
| DaVita Healthcare Partners | DVA | 3.03 |
| Universal Health Services | UHS | 2.86 |
The funds heavy exposure to giant insurance companies helps to make it a lot more stable than other healthcare ETF. In fact, this fund currently has an Equity Beta of only 0.47 when compared to the S&P 500, which means that it experiences less than half of the volatility of the markets in general.
That low beta level might make this fund incredibly boring to own, but when the markets go crazy -- like they did this week -- that stability can help investors keep their head on straight.
What went right this week?
The unfortunate answer to that question is 'not much', as every single one of this ETFs top holdings ended the week lower than it started.
Health insurance giant Aetna (AET) seemed to hold up the best, as it was only down 0.95% for the week. The reason that it held up so well remains a mystery as there doesn't seem to be any news that allowed it to buck the sell off. However, it could be holding up well because of its pending takeover of Humana (HUM 3.89%) -- another of the IHF's top holdings -- has been approved by shareholders of both companies. The $37 billion deal is expected to close in the second half of the year, and once it does this massive company will become the second-largest managed care company in the U.S. That upcoming catalyst looks like it helped both Humana and Aetna shares hold their ground this week.
Express Script Holding Company (ESRX) also held up fairly well this week, as the stock only lost 1.85% of its value. Like Aetna the company didn't release any important news items during the week, but its shares have held steady since it provided investors with guidance for 2016 that looked good. Express Scripts believes that it will produce adjusted earnings per diluted share between $6.08 and $6.28 next year, which represents growth between 10% to 14%. For a company of Express Scripts size thats a relatively bullish forecast.
Safety in a storm
With the markets taking an enormous step back this week, it was good to see that at least one healthcare ETF was able to hold up so well. If you are looking for a healthcare ETF that owns a collection of high-quality, low-volatility healthcare stocks, then this ETF might be worth a look.
