It was an excellent week to have money invested in the healthcare sector. Every single one of the most popular exchange-traded funds that focus on the space ended the short week up at least 1.5%, easily outpacing the returns of the S&P 500 over the same time frame.
This week's top-performing healthcare ETF was the iShares Dow Jones US Pharmaceuticals ETF (NYSEMKT:IHE), which gained 2.86% over the past four trading sessions and left the famous index in the dust.
So what was the secret to IHE's success this week? Let's take a closer look at the inner workings of this fund to see if we can figure out an answer.
iShares Dow Jones US Pharmaceuticals ETF key statistics
|Number of Holdings||42|
|Net Assets||$644 million|
|Average P/E Ratio||30|
The goal of IHE is to give investors an easy way to buy a diversified portfolio of stocks from the U.S. pharmaceutical sector. Right now it holds a stake in 42 companies, with the bulk of its assets concentrated in its top holdings.
Top 10 positions
|Johnson & Johnson||JNJ||9.53%|
|Merck & Co.||MRK||7.48%|
Add them up, and these 10 stocks comprise more than 52% of the fund's total assets, so when a few of these stocks perform well -- as they did this week -- the the whole fund does, too.
What went right this week?
Allergan's stock has been getting a lot of attention from billionaire investors, causing shares to soar this week. Recent filings with the SEC showed that John Paulson, one of the world's wealthiest hedge fund managers, made Allergan into his fund's biggest position, comprising about 10.8% of its portfolio. Other billionaire investors, such as Third Point's Dan Loeb and Elliot Management's Paul Singer, have also put a substantial portion of their fund's assets into Allergan.
But the reason the stock jumped this week is that billionaire investor Carl Icahn disclosed that he, too, has taken a big position in the Botox maker. Icahn has a track record of taking big stock positions and then agitating for shareholder-friendly changes, causing many investors to religiously follow his moves.
Mylan NV's stock leapt this week after news broke that its biosimilar version of Roche Holding AG's breast-cancer drug Herceptin performed just as well in phase 3 trials as the brand-name drug. That's great news, since Herceptin sales each yet exceed $6 billion, giving Mylan a real chance at stealing some market share in the not too distant future if regulators give it the thumbs-up.
What's next for IHE?
IHE has now claimed the title of the week's best-performing healthcare ETF for the fourth time this year, which speaks volumes about how well its strategy of investing in the pharma giants works. With a low expense ratio and a history of winning, this ETF seems like a great choice for investors who want more exposure to the healthcare space.
Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter, where he goes by the handle @Longtermmind-set, or connect with him on LinkedIn to see more articles like this.
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