With populations steadily getting older, the health-care sector might be the place to focus if you're looking for healthy returns. In 2006, the oldest of the baby boomers turned 60, the leading edge of an estimated nearly 80 million boomers. By 2030, the U.S. Census Bureau estimates there will still be roughly 58 million boomers kicking around.
Regardless of how much they exercise or how much they spend on plastic surgery, this huge chunk of the population just keeps getting older. This is good news for the U.S. health-care industry, which stands to benefit from the boomers' golden years. In a nation that spends more dollars per capita on health care than any other country, there are obviously many investment opportunities. But you still should be careful to invest your money wisely.
ETFs coming to market
Sponsors of exchange-traded funds have not been blind to the health-care sector. Roughly a dozen firms have come to market with funds, giving investors more than 40 health-care ETFs to choose from. Options range from broad market funds covering the sector in the United States and around the world to funds that narrow the focus to industry subgroups. Others slice the market into thin segments represented by as few as a couple dozen securities.
ETFs are traded on an exchange like stocks.
Most health-care ETFs have one feature in common: Their holdings are weighted by market cap. That means larger, well-known names will appear in their portfolios more frequently. But a few fund families use different approaches. HealthShares funds are weighted equally so that individual stocks will not dominate the holdings. That seems a sensible approach to such narrowly invested funds. PowerShares offers fundamentally weighted funds and selects stocks based on four fundamental measures: sales, cash flow, book value, and dividends. And WisdomTree focuses on dividend-paying companies, based on the belief that dividends are an objective way to measure value since they are difficult to manipulate.
Many health-care ETFs are fairly new; HealthShares alone came to market at different times throughout 2007 with 20 funds. Short operating histories can make it difficult to gauge how a fund is likely to perform in the future.
Broadly diversified funds
Sticking to broadly diversified funds is the best way to get started in this sector. Both the Vanguard Health Care ETF
Over the border
Developed countries such as Japan and Germany are also dealing with aging populations and concurrent increases in demand for health care. Investors who want to venture outside the U.S. have several diversified ETFs to consider. The WisdomTree International Healthcare Sector Fund
The iShares S&P Global Health Care Sector Index Fund
Narrowing your focus
If you want look at a particular subsector or theme, there are a number of funds to choose from. In a drug-crazy nation like the U.S., it makes sense to look at pharmaceuticals. The SPDR S&P Pharmaceuticals ETF
With cancer an ever-present danger, the HealthShares Cancer ETF
Do your research and start with well-diversified funds and know that there are strong fundamental reasons why an allocation to this sector is likely to be a beneficial and healthy choice for your portfolio.
Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She does not own any of the funds or securities mentioned in this article. The Motley Fool has a disclosure policy.