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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to thrive as our global population grows, ages, and needs medical attention, the iShares Dow Jones U.S. Health Care ETF (NYSE: IYH ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has topped the S&P 500, on average, over the past five years, and just about matched it over the past 10. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a very low turnover rate of 8%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several health-care stocks have done well in the past year. Robotic surgery equipment maker Intuitive Surgical (Nasdaq: ISRG ) gained 62% over the past year as more of its machines were installed in hospitals and more service contracts and supplies were sold for those machines. (Those contracts and supplies are attractive recurring revenue, by the way!) Bulls expect revenue to grow even more as Intuitive machines are approved for additional kinds of procedures.
Biotech concern Alexion Pharmaceuticals (Nasdaq: ALXN ) surged 75%, and has attracted investors by having a profitable drug on the market, the blood disorder drug Soliris. It's also bought several companies recently, in order to stock its pipeline.
Abbott Labs (NYSE: ABT ) rose 21%, and is splitting itself in two to concentrate on medical devices and pharmaceuticals separately. The medical devices company will have a more global reach and is likely to be less volatile. The pharmaceutical company's future will depend on the success of approved drugs and those in Abbott's pipeline.
Other companies didn't do as well but could help boost the ETF's prospects in years to come. Merck (NYSE: MRK ) gained only 8%, and investors are worried about the hit its revenue will take when its asthma drug Singulair loses its patent protection. But the company has plenty of promising drugs in its pipeline, so there's reason for hope. And in the meantime, it offers a dividend yield above 4%.
The big picture
Demand for health-care products and services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.