Bet on Health with This Cap-Weighted Fund

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Health care is a sector that seems poised to benefit from an array of long-term trends. 

It is a well-known fact that the average age of Americans is increasing due to generational trends and improved health care. As advances in health care make longer lives possible, that trend may very well continue.

There are many ways to benefit from increases in health care stock prices, but one path for investors who may not be interested in the risk associated with individual stocks is exchange-traded funds (ETFs). One prime example is iShares Healthcare Providers ETF (NYSE: IHF).

IHF provides broad exposure to U.S. companies on a cap-weighted basis that are engaged in managed health care and insurance, excluding frequently higher-risk pharmaceutical companies.

Over the last year, this fund has beaten the S&P 500 handily and even managed to deliver a positive return at 1.6%. Its small yield of 0.61% only makes matters better. After struggling early in the year, IHF sprung forward with a nice recovery in March and April. It has also performed well in the last month, which may make it appealing as a momentum strategy.

Chart courtesy of StockCharts.com

Top holdings for this fund include UnitedHealth Group (NYSE: UNH), 23.19%; CVS Health Corp. (NYSE: CVS), 13.97%; Elevance Health, Inc. (NYSE + BATS: ELV), 7.92%; Humana Inc. (NYSE: HUM), 4.74%; and Cigna Corp. (NYSE: CI), 4.73%.

Notably, industry giant UnitedHealth Group takes up a sizable chunk of IHF’s holdings due to the fund’s cap-weighting strategy. The company is a solid and stalwart holding that has offered impressive returns over the long haul. After all, companies do not reach $500 billion in market cap without doing a few things right. The solid and steady backbone provided by UNH and CVS Health Corp. may decrease the volatility level of the fund.

Health care is here to stay and likely to continue to advance technologically in the future. We may not know exactly what that will look like, but we can guess that many of the companies represented in iShares Healthcare Providers ETF (IHF) will be involved in that future.

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