PHOTO CREDIT GERALT ON PIXABAY.
It was a rough week to be a healthcare focused investor as every single one of the most popular exchange-traded funds that focus on the space ended the week in the red. It was such a rotten week that the many of these ETFs lost 3% or more of their value during the period and drastically underperformed the S&P 500.
However, one healthcare ETF-- the iShares Dow Jones US Healthcare Provider (NYSEMKT: IHF) -- only decline by 0.82% this week. That might not sound like much of an achievement but it was a good enough performance to allow it to outperform the index and allow it to claim the title of best performing healthcare ETF of the week.
This marks the fifth time since the start of the year that this ETF has been able to make that claim. So what is this fund's secret to success?
IHF key statistics
| Inception Year | 2006 |
| Number of Holdings | 49 |
| Net Assets | $729 million |
| Average P/E Ratio | 21.25 |
| Yield | 0.21% |
| Expense Ratio | 0.45% |
DATA SOURCE: ISHARES.
With an equity beta of only 0.62, this ETF is living proof that you don't always have to be willing to stomach huge volatility if you want to invest in the healthcare sector.
What makes that low beta number even more impressive is that the vast majority of this funds assets are held in just a handful of equities.
A look at this funds top 10 holdings demonstrates just how concentrated it is:
| Company | Symbol | % Assets |
|---|---|---|
| UnitedHealth Group | UNH | 12.97 |
| Express Scripts Holding Company | ESRX | 6.98 |
| Aetna | AET | 6.37 |
| Anthem | ANTM | 6.17 |
| Cigna | CI | 5.83 |
| HCA Holdings | HCA | 4.93 |
| Humana | HUM | 4.77 |
| Centene | CNC | 3.32 |
| Laboratory Corporation of American | LH | 3.26 |
| Universal Health Services | UHS | 3.24 |
TABLE SOURCE: ISHARES.
Adding these positions together produces a concentration of more than 57% in just its top 10 stocks, which you would assume would make this fund's volitiilty skyrocket. However, since the fund's biggest positions are in large, stable health insurance and hospital stocks the fund's volatility remains quite low.
What worked right this week?
As you would expect from a rotten week of trading most of the fund's top holdings ended the week in the red. However, one company -- Universal Health Services (UHS -0.43%) -- actually posted a big weekly gain of more than 4%, making it by far the biggest winner of the group.
Universal Health Services stock popped after the company posted a better than expected first quarter earnings report. Net revenues jumped more than 10% to $2.45 billion and net income rose by nearly 8% to $190.8 million. That allowed the company to post $1.93 in earnings per share, up 11% over the pervious year and nicely ahead of the $1.87 that analysts were expecting.
That wasn't the end of the good news, either. The company's Board of Directors believes that there is a lot of value in Universal Health Services' stock right now so they decided to add another another $400 million to its stock repurchase program. When added to its existing program the company now has the green light to retire up to $800 million of its common stock.
Management didn't waste any time in getting started as it bought back 1.3 million shares during the quarter.
If the company continues to post solid results like this then its likely that those purchases could prove to be a wise use of shareholder capital in due time.
What's next for the IHF?
The IHF has clearly stumbled up a winning formula as the fund is having a truly remarkable year. It is currently the only one of more popular healthcare focused ETFs that is outperforming the market year to date, which is quite an achievement when you consider that some healthcare funds are currently losing to the market by more than 25%.
Add in the fund's modest expense ratio and low volatility and I continue to think that this ETF is a solid choice for any investor who is looking for a low risk way to put money to work in the healthcare sector.
