3 Health Care ETFs Where Components Are Enduring Downgrades

After setting scintillating paces earlier this thanks to the race to develop a coronavirus vaccine, some health care exchange-traded funds are languishing.

What Happened: It could be a case of election year jitters, frustrations over the vaccine timeline or both, but plenty of health care ETFs, particularly those emphasizing biotechnology and pharmaceuticals equities, are retreating.

Wall Street isn't taking the declines sitting down. In fact, a spate of recent downgrades by sell-side analysts are adding fuel to the fire.

“The area where analysts do seem to be worried--somewhat surprisingly given the race for a COVID vaccine--is on shares of Health Care stocks, particularly in the Biotech industry, according to the ETF Research Center (ETFRC).

Why It's Important: ETFRC notes that of the 10 ETFs most afflicted by declines in sell-side ratings, six are health care funds, one of which is the Invesco Dynamic Biotechnology & Genome ETF PBE. PBE is the worst offender on the list with “a 3.1% decline in consensus rating over the past 24 days,” according to ETFRC.

PBE, which tracks the Dynamic Biotech & Genome Intellidex Index and holds 31 stocks, is lower by 7.39% over the past month.

“A three percent decline might not seem like a lot, but remember it is an average of an average,” said ETFRC. “Specifically, analysts' ratings are averaged for each constituent in a fund, and then a weighted average of each constituents' average rating is taken to derive a fund-level change. So a ~3% decline in 3 weeks is a significant change in sentiment, representing the biggest aggregate change among more than 700 U.S.-focused ETF we cover.”

What's Next: The Invesco DWA Healthcare Momentum ETF PTH and the Principal Healthcare Innovators Index ETF BTEC are next on the offenders list with 1.8% declines in the quality of analyst ratings, meaning analysts are downgraded plenty of components within these funds.

Due in part to Moderna MRNA exposure, BTEC was previously a high flier and it has ample utility for investors beyond the coronavirus. It's well off its previous highs, but BTEC is higher by 2.16% over the past month.

PTH also offers plenty of exposure vaccine developers and more than 44% of its 51 components are biotechnology names, making the momentum-based strategy vulnerable to the recent spate of downgrades afflicting that industry.

Of the three other health care ETFs on the ETFRC list, two are dedicated biotech funds.