Health Care ETFs – Winners and Losers

Health-related issues have dominated news headlines in the first quarter of 2020, capturing investors’ attention and increasing interest in healthcare and biotechnology investment opportunities. As the Coronavirus crisis drags on into summer, we look at some healthcare-related winners and losers in the Exchange Traded Fund (ETF) space.

Return Winners

Some of this year’s hottest healthcare ETFs are associated with the biotech industry. Funds like the SPDR S&P Biotech ETF (AMEX: XBI) and the iShares Genomics Immunology and Healthcare (ARCA: IDNA) are up 11.5% and 23.9% respectively in 2020. Although IDNA has a much higher return than XBI, it also carries more risk because it invests in emerging markets. The IDNA fund is a mix of developed and emerging market companies specializing in genomics, immunology, and bioengineering. Many of these companies run high research and development costs with uncertain results or patient outcomes.

Other healthcare ETF winners in 2020 include the Invesco DWA Healthcare Momentum ETF (NASDAQ: PTH) and the Global X MSCI China Health Care ETF (AMEX: CHIH) which are up 21% and 10.7% in 2020. As the name implies, PTH is a momentum-based investment, seeking out stocks that show strong relative price-performance. At the same time, CHIH is uniquely positioned to benefit from healthcare developments in densely populated China, where the virus originated.

Return Losers

Not all medical, biotech, and healthcare ETFs are created equal. There have been some real dogs in the space in 2020, so investors need to understand what they are buying. One of the worst performers is the Direxion Daily S&P Biotech Bear 3X Shares (AMEX: LABD) - a leveraged inverse fund, designed to return 300% of the inverse performance of the S&P Biotechnology Select Industry Index. With Coronavirus on a global march, this ETF has been crushed in 2020, down 64.5%.

Another Direxion ETF under pressure is the Daily Pharmaceutical & Medical Bull 3X Shares (AMEX: PILL). Investors may be surprised by this fund’s poor performance in 2020, considering it offers returns that are 3x the S&P Pharmaceuticals Select Industry Index and moves in the same direction as the index. The fund is down 37.5% in 2020, reaching a low of $6.55 per share, just as the global Coronavirus lockdown was getting started.

Bottom Line

With the Coronavirus crisis looking like it could be here for a while, it is understandable investors are looking for opportunities. Travel and entertainment companies have been crushed by the virus, while some medical-related companies are poised to benefit. Investors need to look carefully at the healthcare investment opportunities on offer. Not every medical-related ETF will benefit from the global pandemic equally.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.