Profit from the Longevity Boom with Healthcare ETFs
Healthcare is one of the most important and resilient sectors in the global economy. As the world population grows and ages, the demand for healthcare products and services will only increase. According to the World Health Organisation, the proportion of the world’s population over 60 years will nearly double from 12% in 2015 to 22% in 2050 with over 2billion people aged over 60.
This means that more people will need medical care, especially for chronic and age-related diseases.
Investing in healthcare can be a smart way to diversify your portfolio and capture the growth potential of this sector and there are a number of ETFs that enable this.
If you are interested in investing in healthcare ETFs, there is a variety of options both on the JSE and offshore on the NYSE and Nasdaq.
Local
The Satrix Healthcare Innovation Feeder (STXHLT): TER 0.47%, annualised performance 1-year 16.7%.
This ETF tracks the the STOXX Global Breakthrough Healthcare Index in ZAR. The STOXX Global Breakthrough Healthcare Index is a broad based diverse index composed of companies at the forefront of biotech, medical devices and healthcare services in developed and emerging markets
Sygnia Itrix Solactive Healthcare 150 ETF (SYGH): TER 0.53%, annualised performance 1-year 22.8%.
Tracking the Solactive Developed Markets Healthcare 150 Index which includes the largest 150 companies from the Healthcare Industry.
Our thoughts?
These two are both broad healthcare and either is great for a local portfolio (or tax-free account).
Offshore
The Aging Population ETF (AGNG) from Global X: TER 0.50%, annualised performance 1-year 16.7%, 3-year 5.1% and 5-year 6.9%.
This ETF seeks out companies positioned to serve an aging world through exposure to health care, pharmaceuticals, senior living facilities and other sectors that contribute to increasing lifespans and extending quality of life in advanced age.
The iShares U.S. Healthcare Providers ETF (IHF): TER 0.42%, annualised performance 1-year 24.6%, 3-year 16.8% and 5-year 16.7%.
The ETF has outperformed the S&P 500 by about 14% over the past year and seeks to track the investment results of an index composed of U.S. equities in the healthcare providers sector.
iShares Global Healthcare ETF (IXJ): TER 0.42%, annualised performance 1-year 19.2%, 3-year 11.4% and 5-year 10.9%.
This fund tracks the S&P Global Healthcare Sector Index, which measures the performance of various health service organisations. It provides exposure to domestic and international companies that specialize in healthcare, diagnostic research, and medical devices.
Vanguard Health Care Index Fund (VHT): TER 0.10%, annualised performance 1-year 22.8%, 3-year 15.7% and 5-year 15.6%.
This fund tracks the MSCI US Investable Market Health Care 25/50 Index, which covers all segments of the U.S. healthcare sector.
Health Care Select Sector SPDR Fund (XLV): TER 0.10%, annualised performance 1-year 12.5%, 3-year 15.4% and 5-year 15.3%.
This fund tracks the Health Care Select Sector Index, which includes companies from the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology.
Invesco S&P 500 Equal Weight Health Care ETF (RYH): TER 0.40%, annualised performance 1-year 24.6%, 3-year 16.9% and 5-year 16.7%.
This fund tracks the S&P 500 Equal Weight Health Care Index, which equally weights each stock in the S&P 500 Health Care Sector Index. It offers a more balanced exposure to different market capitalisations and sub-sectors within the healthcare industry. This ETF has delivered an annualised return of 17.6% over the past five years.
SPDR S&P Biotech ETF (XBI): TER 0.35%, annualised performance 1-year -1.9%, 3-year 9.0% and 5-year 13.3%.
This fund tracks the S&P Biotechnology Select Industry Index, which represents the biotechnology sub-industry portion of the S&P Total Markets Index. It focuses on small- and mid-cap companies that are involved in cutting-edge research and development of new drugs and treatments.
iShares US Medical Devices ETF (IHI): TER 0.42%, annualised performance 1-year 23.1%, 3-year 20.0% and 5-year 20.6%.
This fund tracks the Dow Jones U.S. Select Medical Equipment Index, which measures the performance of U.S. companies that manufacture and distribute medical devices. It targets a high-growth segment of the healthcare sector that benefits from technological innovation and demographic trends.
Our thoughts?
Devices such as tracked in the iShares US Medical Devices ETF (IHI) are likely more immune to the regulatory threat and along with the The Aging Population ETF (AGNG) from Global X would be my preferred.
Regulation risk
A last important point is regulation. This is the risk in the sector as the cost of healthcare increases well ahead of inflation and governments the world over are taking note. We can expect many countries to introduce legislation to try and slow down prices increases and even reduce healthcare costs. But the trend remains that an aging (and richer) population will require more healthcare.
ETF blog
At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.