Image by TBIT, Pixabay.
It was another ugly week to have money invested in the healthcare sector, as several of the most popular exchange-traded funds that specialize in healthcare stocks ended the week much lower than they started. It was such a rotten week that the best-performing healthcare ETF of the group, the iShares Dow Jones US Healthcare Provider ETF (IHF 0.29%), still fell by 1.95% during the past five trading days. But as bad a performance as that was, it still managed to outperform the S&P 500, which shed 2.76% of its value during the week.
So what stocks are inside the iShares Dow Jones US Healthcare Provider ETF that allowed it to hold up so well during such market turmoil?
Top holdings
One distinguishing characteristic of that ETF is that its assets are heavily concentrated in just a handful of giant health insurers. While that may make this fund boring to talk about at cocktail parties, a big concentration in such slow and steady businesses helps to keep this ETF's volatility down when the market heads south.
| Company | Symbol | % Assets |
|---|---|---|
| UnitedHealth Group | UNH | 13.05 |
| Express Scripts Holdings | ESRX | 8.75 |
| Cigna | CI | 6.38 |
| Aetna | AET | 6.20 |
| Anthem | ANTM | 6.15 |
| Humana | HUM | 5.01 |
| HCA Holdings | HCA | 4.30 |
| Laboratory Corporation of America | LH | 3.31 |
| DaVita Healthcare Partners | DVA | 3.16 |
| Universal Health Services | UHS | 2.93 |
Table Source: iShares.
So which of these stocks helped to keep the fund ahead of the S&P 500 this week?
What went right this week
This fund's heavy concentration in health insurance stocks paid off in spades this week, as six of its top 10 holdings ended the week higher than they began.
Anthem (ELV 0.40%) was a particularly strong performer this week. Without any specific news to report on, investors continue to grow bullish on its pending acquisition of Cigna (CI), which on its own was also a strong performer for the week.
Last week, Cigna held a special shareholder meeting to vote on whether or to accept the terms of the merger agreement with Anthem, and 99% of the votes were in favor. That same day, Anthem shareholders responded in kind, with 99% of their own votes giving the acquisition the go-ahead. This deal could be lucrative for Anthem, so it's no surprise to see its shareholders so excited about its potential.
Once this deal closes, Anthem is planning on using Cigna's size to help it scale up its Medicare Advantage operations. Anthem isn't a big player in the Medicare Advantage market right now, so adding Cigna into the fold should help it gain a stronger presence in a market poised for long-term growth, especially considering 10,000 baby boomers retire every single day.
The only remaining hurdle to clear is for the authorities to give their approval. If all goes well, the transaction should close sometime in the later half of 2016.
Safety in a storm
With the markets taking a big step back this week, it was nice to see that IHF was able to hold up so well, especially since it the worst-performing ETF in November. With its concentration on high-quality, low-volatility healthcare stocks, investors in this ETF will do quite well over the long run.
