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Last Week's Best Healthcare ETF

By Brian Feroldi - Jan 30, 2016 at 1:46PM

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Healthcare stocks had another rough week, but this healthcare ETF held up best.

Image source: Mattza/Flickr Creative Commons.

The S&P 500 continued to bounce back from the drubbing it has taken since the start of the year, rising 1.57% during the week, but those gains didn't find their way into the healthcare sector as all of the most popular ETFs that invest in only healthcare stocks ended the week in negative territory.. The week was so bad for healthcare investors that the best-performing ETF in the sector -- the iShares Dow Jones US Healthcare Provider ETF (IHF -0.23%) -- still declined 0.52% for the week, lagging the S&P 500 by more than 200 basis points.

IHF Price Chart

So what's happening inside the iShares Dow Jones US Healthcare Provider ETF that allowed it to beat out all other healthcare-focused ETFs this week?

Cracking it open
One distinguishing feature of the iShares Dow Jones US Healthcare Provider ETF is that the majority of its assets are concentrated in a handful of healthcare companies, primarily health insurers.

Here's a list of the fund's current top 10 holdings:

CompanySymbol% Assets
UnitedHealth Group UNH 13.30
Express Scripts Holding Company ESRX 7.51
Aetna AET 6.50
Cigna CI 6.37
Anthem ANTM 6.34
Humana HUM 5.11
HCA Holdings HCA 4.88
Laboratory Corporation of America LH 3.12
DaVita Healthcare Partners DVA 3.07
Universal Health Services UHS 2.91

Data source: iShare.

The fund's outsized exposure to the biggest players in the health insurance industry tends to make its share price a lot more stable than the healthcare industry in general. In fact, this fund is far less volatile than even the S&P 500 as a whole as it sports an equity beta of only 0.47. 

What went right this week?
This fund's huge concentration in health insurance stocks didn't do it any favors over the past few trading days as the group took a collective step back this week. Anthem's (ANTM 1.73%) stock was hit especially hard as it fell 7.72% during the week after it reported fourth-quarter earnings. While its revenue came in ahead of expectations, Anthem experienced a huge jump in its benefits expenses, which greatly pressured its bottom line. Net income dropped by nearly two-thirds when compared to the year-ago period and came in below expectations. Traders dumped shares as a result. 

However, it wasn't all doom and gloom. Both of the fund's hospital stocks -- HCA Holdings (HCA -0.60%) and Universal Health Services (UHS -0.49%)  -- saw their share prices spike.

HCA Price Chart

HCA Holding stock jumped after investors cheered its fourth-quarter earnings report. Revenue at the hospital operator jumped 6.4% to $10.25 billion and adjusted earnings came in at $1.69 per share. Both of those figures came in ahead of expectations.

HCA Holdings also issued an upbeat forecast for the year ahead as in 2016 it expects profits to land between $6 to $6.45 per share off revenue in the range of $41.5 billion to $42.5 billion. That represents a bullish outlook from the $4.99 that it reported in 2015.

HCA Holdings caused traders to bid up shares of other hospital stocks as well, which is why Universal Health Services' stock also got a lift this week. Universal Health Services didn't release any important news other than to let investors know that it will be reporting its fourth-quarter results at the end of February. Investors will have to wait until then to see if this week's move was justified.

Safety in a storm
With healthcare stocks continuing to see huge selling pressure, there are few places for those who want to remain invested in the space to ride out the storm. Any investor who is looking for a low-volatility way to put money to work might want to consider giving the IHF a closer look.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Express Scripts. The Motley Fool recommends Anthem and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Universal Health Services, Inc. Stock Quote
Universal Health Services, Inc.
$109.62 (-0.49%) $0.54
Anthem, Inc. Stock Quote
Anthem, Inc.
$483.97 (1.73%) $8.25
HCA Healthcare, Inc. Stock Quote
HCA Healthcare, Inc.
$210.07 (-0.60%) $-1.27
iShares Trust - iShares U.S. Healthcare Providers ETF Stock Quote
iShares Trust - iShares U.S. Healthcare Providers ETF
$279.43 (-0.23%) $0.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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