Should You Invest in the iShares U.S. Healthcare ETF?

Looking for broad exposure to the Healthcare - Broad segment of the equity market? You should consider the iShares U.S. Healthcare ETF IYH, a passively managed exchange traded fund launched on 06/12/2000.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also 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 7, placing it in top 44%.

Index Details

The fund is sponsored by Blackrock BLK. It has amassed assets over $3.26 billion, making it one of the larger ETFs attempting to match the performance of the Healthcare - Broad segment of the equity market. IYH seeks to match the performance of the Dow Jones U.S. Health Care Index before fees and expenses.

The Russell 1000 Health Care RIC 22.5/45 Capped Gross Index measures the performance of the healthcare sector of the U.S. equity market.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.40%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 1.16%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, 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 LLY accounts for about 11.72% of total assets, followed by Unitedhealth Group Inc UNH and Johnson & Johnson JNJ.

The top 10 holdings account for about 53.73% of total assets under management.

Performance and Risk

Year-to-date, the iShares U.S. Healthcare ETF has added roughly 4.12% so far, and is up about 11.73% over the last 12 months (as of 05/30/2024). IYH has traded between $51.45 and $61.96 in this past 52-week period.

The ETF has a beta of 0.69 and standard deviation of 14.45% for the trailing three-year period, making it a medium risk choice in the space. With about 116 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares U.S. Healthcare ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, IYH is a reasonable option for those seeking exposure to the Health Care ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Vanguard Health Care ETF VHT tracks MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF XLV tracks Health Care Select Sector Index. Vanguard Health Care ETF has $17.32 billion in assets, Health Care Select Sector SPDR ETF has $38.12 billion. VHT has an expense ratio of 0.10% and XLV charges 0.09%.

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