Tag Archives: IEIH

Searching For A Healthcare ETF

As I reviewed my investment portfolio I noticed that I am still missing an ETF for the healthcare sector. Personally, I’ve been leaning toward the Vanguard Health Care Index Fund ETF ($VHT). But I was interested to see what else was being offered so I did a bit more research.
I searched out for healthcare ETFs with these different Fund Families:

  • Fidelity
  • Invesco
  • iShares
  • Vanguard

The search resulted in about 11 different funds for review. I narrowed it down to 9 funds because Invesco S&P SmallCap Health Care ETF ($PSCH) and Invesco DWA Healthcare Momentum ETF ($PTH) does pay out dividends. Dividends are a key focus of mine so these 2 funds are automatically out. So now I look at the other funds and review the factors that I use for selecting ETFs that I’m interested in investing in. I look at dividend payout, dividend yield, and stock price. Based on those criteria, I eliminated the following funds:

$FHLC – this was the only healthcare fund being offered by Fidelity. Even though the price is very economical at $56/share, the dividend is too low to be worth the investment ($0.70/share) even though the dividend yield is around 1.23%. To be honest most of the fund in this list are paying out pretty close to this yield amount. Even if the stock price dropped close to its 52 week low range of $35, the yield would still be under 2%.

Then there’s $IEIH, an iShares fund that is trading at around $32/share. But it’s also paying out a low dividend of $0.40 for a yield of 1.22%. Even if the share price dropped to its 52 week low of $22.07/share the yield would still be under 2%.

Now we come to $IHF. This fund is trading at the high end of its 52 week range at about $228/share. Even if the price dropped to its 52 week low of $134.50, the current yield of 0.73% would not get that much better. It would only increase to 1.24%. Way below my criteria of 3% minimum.

That leaves us with the Invesco funds of $PBE, $PJP, and $RYH. I’m not going to detail these individually because they are all low dividend yield funds that pay out pennies per share. Their yields range from 0.04% to 0.82%. They’re all trading at the high end of their 52 week range so the yields will not be getting any better.

So, out of the 9 funds that were left, I eliminated 6 of them based on my criteria. Now I need to decide between:

$IHE – iShares U.S. Pharmaceutical ETF

$IYH – iShares U.S. Healthcare ETF

$VHT – Vanguard Health Care ETF

$IHE is the least expensive of the 3 funds. It’s trading at the high end of its 52 week range at about $176/share with a dividend payout of about $2.14 (for a yield of 1.22%). At its low end range it would still only have a yield of 1.86%. The expense ratio for this fund is 0.42%. Morningstar rates this fund as average risk with below average returns.

Next we have $IYH that is also trading at its 52 week high range of $242/share while its dividend payout is $2.86 for a yield of 1.19%. The yield would be similar to $IHE if the shares traded at the low end of the 52 week range. Expense ratio of 0.43% with a Morningstar rating of a below average risk and average return.

Lastly, we have $VHT. This fund is also trading at its high end of its 52 week range at about $220/share. The dividend payout is $2.55 (for a yield of 1.16%). Again, if the price dropped to the low end of the 52 week range the yield would be 1.86%, also, like the others. However, the key difference is the expense ratio, While the other funds have their expense ratio north of 0.40%, this fund has an expense ratio of only 0.10%. And the Morningstar rating is below average risk and average return. Similar to $IYH.

I have outlined how I go about reviewing and deciding which ETF to invest in. This may not work for you because you may have a different set of criteria or you may be looking at a different set of data. That’s fine because you are the one that has to decide the best way to invest in your money. I’m not a financial professional and nothing in this post is to be taken as investment advice. If you are unsure of what you need to do or how, seek the advice of a professional.

Even though I tend to lean toward Vanguard ETFs, I did a search of other fund families in order to make sure that I wasn’t locked into my bias toward them. I will probably purchase $VHT when the funds are available and thus will have a position in the healthcare sector. $VHT because of its lower expense ratio. If I had to select a second choice it would probably be $IHE because, even though the expense ratio is 0.40+, it is very slightly lower than the other iShare funds.

But do you own due diligence and make sure that you are the one that is formulating and controlling your investment strategy.