Best And Worst Q2’17: Health Care ETFs And Mutual Funds

The Health Care sector ranks sixth out of the ten sectors as detailed in our Q2’17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Health Care sector sixth as well. It gets our Neutral rating, which is based on an aggregation of ratings of 23 ETFs and 91 mutual funds in the Health Care sector. See a recap of our Q1’17 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Health Care sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 362). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Health Care sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Our robo-analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

The Saratoga Health & Biotechnology Portfolio (MUTF:SBHIX) and the ICON Healthcare Fund (MUTF:ICHCX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

The Fidelity MSCI Health Care Index ETF (NYSEARCA:FHLC) is the top-rated Health Care ETF and the Schwab Health Care Fund (MUTF:SWHFX) is the top-rated Health Care mutual fund. Both earn an Attractive rating.

The BioShares Biotechnology Products Fund (NASDAQ:BBP) is the worst rated Health Care ETF and the Prudential Jennison Health Sciences Fund (MUTF:PHLAX) is the worst rated Health Care mutual fund. Both earn a Very Dangerous rating.

340 stocks of the 3000+ we cover are classified as Health Care stocks, but due to style drift, Health Care ETFs and mutual funds hold 362 stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our robo-analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At…

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