Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to prosper over the long run as our global population grows and ages, the Health Care Select Sector SPDR ETF (NYSE: XLV ) 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 a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a very low 0.18%. And it yields 2%, as well.
This ETF has performed reasonably well, beating the world market over the past three and five years, and slightly lagging it over the past decade. 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 7%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of health-care companies had strong performances over the past year. Abbott Labs (NYSE: ABT ) and Gilead Sciences (Nasdaq: GILD ) , for example, both advanced 25%. Abbott will be splitting up its pharmaceutical and medical devices (and nutritional products) businesses later this year, giving each a chance to shine on its own. Those worried about the patent-protection expiring for Abbott's Humira, for example, might just choose not to invest in that chunk of the company, perhaps focusing on the other, where there are high hopes for brisk sales of consumer products in emerging markets.
Meanwhile, Gilead, known best for its HIV treatments, has been expanding its scope, most notably into hepatitis treatments. Its revenue growth has been slowing, but it's the future that really counts, and Gilead has several promising treatments in the works. It's negotiating with possible partners over a hepatitis C drug, for example.
Pfizer (NYSE: PFE ) jumped 15%, and hopes are high that it might get its next blockbuster approved in August -- tofacitinib, which treats rheumatoid arthritis. Pfizer recently broke off its partnership with biosimiliars company Biocon, having made a nonrefundable $200 million payment to it. Bears worry about Pfizer's blockbusters losing their patent protection soon, but that can be overcome by boosting its pipeline via acquisitions or internal development. In the meantime, patient investors can collect a dividend yield of nearly 4%.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Celgene (Nasdaq: CELG ) gained just 5%, for example, as its stock took a hit when it withdrew its approval application in Europe to expand the use of its multiple myeloma drug, Revlimid. Some see Celgene as an attractive acquisition target due to its pipeline.
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.
If you're looking for investments with huge potential, check out our special free report, "Discover the Next Rule-Breaking Multibagger." It profiles a promising stock in the health-care arena.