Should You Invest in the Health Care Select Sector SPDR ETF?

Looking for broad exposure to the Healthcare - Broad segment of the equity market? You should consider the Health Care Select Sector SPDR ETF XLV, a passively managed exchange traded fund launched on 12/16/1998.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 4, placing it in top 25%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $40.97 billion, making it the largest ETF attempting to match the performance of the Healthcare - Broad segment of the equity market. XLV seeks to match the performance of the Health Care Select Sector Index before fees and expenses.

The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.49%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector--about 100% of the portfolio.

Looking at individual holdings, Eli Lilly & Co LLY accounts for about 13.14% of total assets, followed by Unitedhealth Group Inc UNH and Johnson & Johnson JNJ.

The top 10 holdings account for about 55.87% of total assets under management.

Performance and Risk

So far this year, XLV has added about 10.92%, and is up roughly 12.74% in the last one year (as of 07/31/2024). During this past 52-week period, the fund has traded between $123.14 and $150.54.

The ETF has a beta of 0.67 and standard deviation of 14.18% for the trailing three-year period, making it a medium risk choice in the space. With about 66 holdings, it effectively diversifies company-specific risk.

Alternatives

Health Care Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLV is a great option for investors seeking exposure to the Health Care ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares Global Healthcare ETF IXJ tracks S&P Global 1200 Healthcare Sector Index and the Vanguard Health Care ETF VHT tracks MSCI US Investable Market Health Care 25/50 Index. IShares Global Healthcare ETF has $4.14 billion in assets, Vanguard Health Care ETF has $18.31 billion. IXJ has an expense ratio of 0.42% and VHT charges 0.10%.

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