Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some health-care stocks to your portfolio, the First Trust Health Care AlphaDEX ETF (FXH -0.41%) 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.70 %. That's a bit more than many ETFs, but also considerably lower than the typical managed mutual fund.
This ETF has performed well, trouncing the world market over the past three and five years. 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.
Why health care?
For starters, our planet's growing and aging population will keep demand rising for health-care products and services. On top of that, Obamacare is likely to usher more Americans into health coverage, delivering more consumers to companies treating them.
More than a handful of health-care companies had strong performances over the past year. Onyx Pharmaceuticals (NASDAQ: ONXX), for example, popped by 81%, largely due to FDA approvals of its multiple myeloma drug Kyprolis and its colorectal cancer drug Stivarga, and despite a failure for its liver-cancer drug Nexavar. There has been some speculation that Onyx's Nexavar partner, Bayer, might buy the whole company, for the rest of its pipeline. In the meantime Onyx, like other biotechs, has some worried about dilution as it issues more shares to raise funds.
Regeneron (REGN 0.79%) soared 76%, thanks to its Eyelea, a successful treatment for macular degeneration. Better still, the drug has received approval in Europe as well. Regeneron also has other promising drugs in its pipeline, such as some tackling cancer that it's developing with partners. While some think it's now valued too high, others find it attractive since it has so much growth potential.
ARIAD Pharmaceuticals (NASDAQ: ARIA), up 27%, received FDA approval for its leukemia drug ponatinib, now known as Iclusig. Its bone-tumor drug ridaforolimus was rejected in Europe, but it might still prove effective against other cancers. Recent quarterly results were mixed, with cash burn a concern as losses increase, which is why it recently issued more shares to raise more than $300 million. The company has been spending heavily on research and development, and it needs some more success from its pipeline, as well as a successful launch of Iclusig.
Alexion Pharmaceuticals (ALXN) rose 21%. It's a biotech company that focuses on rare diseases, with its Soliris drug selling well as it treats paroxysmal nocturnal hemoglobinuria (a cause of anemia) and atypical hemolytic uremic syndrome. On the plus side, Soliris is competition-free for the near future. On the negative side, it's the most expensive drug in the world, costing $400,000 annually. With the company's market cap around $18 billion, a good case can be made that it's overvalued, especially for a one-drug company.
The big picture
Demand for health care 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.
