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ETF’s for Your Health

12/01/2006 12:00 am EST


Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Focusing on the burgeoning healthcare sector of the economy, ETF and mutual fund expert Jim Lowell investigates a range of exchange-traded funds whose holdings comprise several segments of the healthcare market, including biotech, pharma, insurance, and equipment...

"In this month's issue we continue our focus on what I consider to be two attractive large-cap growth sectors in the marketplace: healthcare and technology. Last month, we used the ETFA Spotlight to laser beam in on the IXJ (iShares S&P Global Healthcare), as prologue for this month's ETFA Focus: Healthcare.

"Of course, healthcare isn't so much a sector as it is a marketplace unto itself. Currently accounting for nearly 16% of GDP, it is the biggest, broadest "sector" within the S&P; and inside this sector you'll find many spokes to one wheel: Major pharmaceuticals, surely; biotechnology, naturally; HMOs, yes; medical equipment and systems companies, too.

"Let's take a look at what the current universe of healthcare ETFs looks like. Biotech HOLDRS (BBH AMEX) is a buy. A "holder" is Merrill Lynch's version of an ETF; it's basically a trust that holds securities in the Biotech sector. The ETF's top ten holdings include Genentech, Inc., Amgen, Inc., Gilead Sciences, Inc., Biogen Idec, Inc., Genzyme Corp, Applera Corp-Applied Biosystems Group, MedImmune, Inc., Shire, Plc., Sepracor, Inc., and Millennium Pharmaceuticals. For a long-term play on the more speculative side of the necessary growth stock story that healthcare provides, this is a natural sub-sector choice. This ETF is most suitable for aggressive growth investors by virtue of the fact that the fund is hardly diversified (it holds just 16 stocks) and the top three holdings equate to nearly 80% of total assets; as goes any one of the top three, so goes the whole shebang.

"iShares Dow Jones US Healthcare Sector Index ( IYH AMEX) is a well-diversified healthcare ETF which holds every subsector under its sun, covering the overall health care sector as reflected in its top ten holdings: Johnson & Johnson, Pfizer, Inc., Merck & Co, Inc., Amgen, Inc., Abbott Laboratories, Wyeth, UnitedHealth Group, Inc., Medtronic, Inc., Eli Lilly & Co, and WellPoint, Inc.

"iShares Dow Jones US Medical Devices Index (IHI NYSE) is also a buy. Medical equipment and systems are the necessary parts of an aging society bent on staying ageless. This ETF is based on the Dow Jones US Medical Devices Index which tracks the medical equipment sector. Its top ten holdings include Medtronic, Inc., Boston Scientific Corp, Zimmer Holdings, Inc., Stryker Corp, St Jude Medical, Inc., Biomet, Inc., Thermo Electron, Corp., Varian Medical Systems, Inc., Applera Corp Applied Biosystems Group, and Waters Corp."

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