ETF Talk: Profit from Aging Baby Boomers

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

As Americans continue to age and to live longer lives, what could offer a more stable investment than healthcare? The Vanguard Health Care ETF (VHT), in particular, provides just such an investment opportunity. Healthcare historically has remained a stable investment, but now that the baby-boomer generation is starting to retire, the healthcare sector is poised to make significant gains. Indeed, VHT has been on the rise, opening the year at $61.93 and closing at $65.97 on May 15.

The Vanguard Health Care ETF (VHT) seeks to track the performance of a benchmark index that measures the investment return of stocks in the healthcare sector. This index focuses on companies involved in providing medical or heath care products, services, technology, or equipment. Even though VHT follows a narrow sector, it is diversified within the healthcare industry, which offers relative stability for investors who seek growth, as well as the preservation of their capital.

As of April 30, VHT’s top five holdings were Johnson & Johnson (JNJ), 10%; Pfizer Inc (PFE), 9.9%; Merck & Co Inc (MRK), 6.6%; Abbott Laboratories (ABT), 5.4%; and UnitedHealth Group Inc (UNH), 3.6%.

Because of its wide circulation and relatively stable equity holdings, VTF is uniquely poised to capitalize on increasing demand in the medical industry. The fund’s holdings are primarily in Pharmaceuticals, 44.30%; Health Care Equipment, 15.30%; Biotechnology, 14.60%; and Managed Heath Care, 8.20. It also has additional holdings in healthcare services and life sciences tools and services.

The fund’s year-end 2011 expense ratio was .19%, 88% lower than the expense ratio of other funds with similar holdings. In my view, this fund offers low fees, a chance for capital appreciation and only modest risk for the loss of principal. It should do well as healthcare demand increases.

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