This week begins our series on growth funds that I recommend for investors in 2016. And to that end, I’d like to go back and consider an exchange-traded fund (ETF) that this column discussed not too long ago that focused on a sector that I think has potential to generate strong returns this year.
If you guessed I’m referring to Health Care Select Sector SPDR (XLV), give yourself a pat on the back.
The index on which this fund bases its holdings includes all S&P 500 stocks classified as health care. This means that it is basically composed of large, blue-chip, relatively stable health care companies. Familiar names fill the list of its top holdings.
Health care has a lot of tailwinds in its favor this year. If the market stops its nosedive, then health care is one of the sectors most likely to recover strongly.
This fund is down 5.33% over the last 12 months, though that situation improves if you take into account the just over $1 it paid in dividends during that time. XLV now is trading well off its 52-week high, and could provide impressive returns if it moved back up to its lofty levels of the not-too-distant past.
Indeed, XLV is a big fund, with assets managed totaling about $13 billion. Its dividend yield is 1.43%. The following chart offers a more complete picture of recent performance.
As a sector fund, this ETF invests all its assets in health care companies. Therein, prominent subsectors include pharmaceuticals, biotech and health care providers and suppliers. Among its largest holdings are Johnson & Johnson (JNJ), 10.44%; Pfizer Inc. (PFE), 7.46%; Merck & Co. (MRK), 5.57%; Gilead Sciences (GILD), 5.14%; and Allergan plc (AGN), 4.80%.
If you believe in the power of blue-chip health care stocks, Health Care Select Sector SPDR (XLV) is a useful tool for investing in a swath of them.
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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.