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Biotech On The Edge? Try Better-Performing Healthcare ETFs

Issues in winter 2016 are similar to those in summer 2015. Like China, the U.S. biotech space went berserk in the first week of 2016 with the Nasdaq Biotechnology index losing over 8.7%. With this, the sector snapped the winning momentum of the last four years (an average 7% return ). One of the reasons behind the slump was the Chinese stock market rout that stemmed from soft economic data and its ripple effect on other asset classes. Though there is no direct correlation between the Chinese market and the U.S. biotech space, the flight to safety was prevalent in the first week of 2016. Investors fled the high-growth and high-momentum investing areas like biotech and parked their money in the safe-haven assets. Additionally, a host of early-stage companies chose secondary stock offerings at discounted prices last week. Now, stock prices tend to swing when publicly offered. In fact, fresh issuance dilutes the shares and lowers their value. This is especially true when the stocks are sold at deep discounts to the current market price. As per analysts, Akebia Therapeutics (NASDAQ: AKBA ) and Epizyme (NASDAQ: EPZM ) priced their stocks at $9 each, down 36.6% and 68.4% respectively from their 52-week highs. In any case, biotech stocks have long been guilty of overvaluation. Even after the sell-off, the biggest biotech ETF the iShares Nasdaq Biotechnology (NASDAQ: IBB ) trades at 22 times P/E (ttm) compared with 17 times P/E of the SPDR S&P 500 ETF (NYSEARCA: SPY ) . Yes, the sector holds a lot of promise, but occasional risk-off trade sentiments and overvaluations are threats to it. Though we believe that after such a steep sell-off, biotech stocks will rebound in the coming days, it is wise for value investors to take some rest off biotech stocks and ETFs, and instead turn their attention towards the more stable, diversified but equally promising broader healthcare ETFs. Inside Broader Healthcare Space The broader healthcare sector is also full of strength. A whirlwind of mergers and acquisitions, promising industry fundamentals, plenty of drug launches, growing demand in emerging markets, ever-increasing healthcare spending and Obama care play major roles in making it a lucrative bet for the long term. Moreover, healthcare is said to be recession-proof in nature. As a result, in the recent market rout, the following healthcare stocks were less damaged and lost in the range of 3-5.4% compared with 16.5% losses at the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ) . Let’s take a look at the healthcare ETFs that resisted the recent wild sell-offs to a large extent. Investors should note that most of the following healthcare ETFs hold a Zacks ETF Rank #1 (Strong Buy). iShares US Healthcare Providers ETF (NYSEARCA: IHF ) This ETF provides exposure to 50 companies that provide health insurance, diagnostics and specialized treatment by tracking the Dow Jones U.S. Select Healthcare Providers Index. About half of the portfolio is dominated by managed care firms while healthcare services and healthcare facilities round off the top three. The fund has amassed $681.8 million in its asset base while charging 45 bps in annual fees. IHF fell nearly 3.63% in the first week of 2016 and has a Zacks ETF Rank of 1. iShares Global Healthcare ETF (NYSEARCA: IXJ ) This $1.45-billion global healthcare ETF holds 90 stocks. Pharma, biotech and life sciences have three-fourth of the share while the rest is occupied by healthcare equipment and services. The fund is heavy on the U.S. (65.7%) followed by Switzerland (11%). The product charges 48 bps in annual fees and lost 3.4% in the last five trading sessions (as of January 8, 2016). Health Care Select Sector SPDR ETF (NYSEARCA: XLV ) The most popular healthcare ETF follows the Health Care Select Sector Index. This large cap centric fund manages about $13.2 billion in its asset base. Expense ratio comes in at 0.14%. In total, the fund holds 58 securities in its basket. Pharma accounts for 38.7% share from a sector look while biotech (24.1%), healthcare providers and services (18.6%), and equipment and supplies (13.9%) make up for a double-digit exposure each. The Zacks Rank #1 fund was off 3.6% in the first week of 2016. iShares U.S. Medical Devices ETF (NYSEARCA: IHI ) The fund has amassed about $720 million in assets invested in 50 stocks. Healthcare equipment has around 85.8% exposure followed by life sciences (13%). The fund charges 45 bps in fees. The fund lost about 4% in the last five trading sessions (as of January 8, 2016). Original Post

5 Sector ETFs For December

So far, the month December has been downbeat for the U.S. market with the S&P 500 and Nasdaq Composite Index losing about 2.6% each (as of December 9, 2015) and the Dow Jones Industrial Average shedding about 2.2%. The commodity market rout instigated by fresh oil lows, the possibility of a Fed lift-off in a few days, the persistent slump in Chinese economic indicators, milder-than-expected generosity from ECB regarding the stimuli in the Euro zone, a strong greenback and depreciating emerging markets have set the backdrop for this investing lull. People are speculating hard about what the potential bet could be at this point of time, given the above-mentioned deterrents. Since equities are in the negative territory, hearsay is rife that there may not at all be any sector winner this month. For them, below are five sector ETFs which could be in watch for the rest of this month. The sectors have been chosen as per the Zacks Market Strategy. Semiconductor – Market Vectors Semiconductor ETF (NYSEARCA: SMH ) Since the second half of 2015 marked the rebound of tech stocks, semiconductors can’t be far behind. The semiconductor market will be propelled by smartphones and automotive in the coming days. As car sales are soaring and consumers are binging on tech gadgets this holiday season, demand for semiconductors should surge. Moreover, some analysts believe that the PC market is set for a rebound, helping companies like Intel (NASDAQ: INTC ). Meanwhile, the semiconductor titan Intel hiked its dividend and provided a bullish outlook for 2016. Impressive Q3 earnings are also driving this sector. In the last one month (as of December 9, 2015), the fund gained over 2.5%. Medical Devices – iShares U.S. Medical Devices ETF (NYSEARCA: IHI ) Though the healthcare sector has confronted a number of issues regarding steep pricing on drugs, overvaluations of biotech stocks and the future of ObamaCare, the sector sailed through pretty smoothly. The medical sector has seen earnings rising 15.2% on 9.7% higher revenues in Q3, with 80.8% of the companies beating EPS estimates and 59.6% surpassing on revenues. In the sector, medical products seem the most stable if we consider both earnings and revenue growth of 13.4% and 12.2%, and beat ratio of 71.4% and 61.9%, respectively. As much as 86% of the fund is invested in healthcare equipment followed by life sciences tools & services (12.84%). The fund has a Zacks ETF Rank #1 (Strong Buy) and was down 1.4% in the last one month (as of December 9, 2015). US Global JETS ETF (NYSEARCA: JETS ) Development in the airline industry is rampant these days. Busy traffic on improving travel and business demand, restructuring indicatives, stepped-up ancillary revenues, limited capacity growth and most importantly rock-bottom oil prices have put the spotlight on this area. Fuel accounts for a large portion of airlines’ operating expenses and the possibility of soft oil prices for longer has helped the sector to battle headwinds like a stronger dollar and global growth worries. The sole airline ETF JETS might have lost 1.1% in the last one month (as of December 9, 2015) on the November Paris terror attacks which resulted in lower tourism; but is due for a reversal in the coming days. KBW Premium Yield Equity REIT Portfolio (NYSEARCA: KBWY ) The interest-rate sensitive REIT sector might underperform once the Fed enacts a lift-off, but the underlying fundamental for the area is quite strong. As demand for housing picks up in the U.S., and the economy rebounds, the requirement of establishment rises and so does rent. So, income for REITs should go up. Notably, when rates rise on the back of a pickup in the economy, REITs outperform. As per reit.com , “in the 16 periods since 1995 when interest rates rose significantly, Equity REITs generated positive returns in 12.” Finally, REITs are strong dividend vehicle. The fund KBWY yielded 5.59% as of December 9, 2015 which is way above the current benchmark U.S. treasury yield of 2.22%. The fund has a Zacks ETF Rank #3 (Hold) and was flat in the last one month. SPDR S&P Retail ETF (NYSEARCA: XRT ) Traditionally, December is the month for retail and discretionary purchases. Though shopping euphoria has subdued a little among cautious consumers in recent times, spending on apparel, accessories, footwear and tech gadgets is still high thanks to the holiday season. As a result the Zacks Rank #1 XRT should be closely watched. The fund has 22.3% exposure in apparel followed by 16.4% in specialty stores and 15.4% in automotive retail. However, XRT was down 3.6% in the last one month. Original Post