The average US stock mutual fund is down 13% this yr.  And the average Foreign stock mutual fund is down more than 20% this yr.  But the average Health Care mutual fund is up 2% this yr. 

The health care industry is very likely the strongest industry out there right now. 

The US population is aging.  The ratio of workers to retirees has gone from 6:1 in 1960 to 3:1 today.  In Japan and Eastern Europe this is also the case.  Most of the world’s industrialized nations are aging.  It is also true that on average a person spends more on health care in their last yr of life than in all the other yrs combined.  So with an aging population, we are going to be spending lots on health care (and I mean that in a global sense, not just an American sense). 

More stats:

1 ) Standard & Poors expects the companies that makes up the S&P 500 to report earnings decreases of 2.1% this yr.  But S&P expects health care companies within the S&P 500 to report earnings increases of 9.7%. 

2 ) The average market P/E is 16 while the average health care company P/E is 15. 

So you are getting more earnings for less money if you buy a health care company right now versus an average company.  And the demand for health care goods and services is on the rise as the world’s population ages.  Health Care is not something you can substitute out of like oil is either.

Health Care Investment Options:

If you have a lot of money to invest, Vanguard has an excellent Health Care Fund (ticker = VGHCX).  The bad news is that you need $25,000 for your initial investment.  The management fees are extremely low at 0.26%. 

If you have less money, they have a Health Care ETF (ticker = VHT) with no minimum initial investment.  Management fees are 0.22%.  VHT and VGHCX are pretty much the same vehicle.  The difference is that one is traded intra-daily (VHT) and the other only once a day (VGHCX).

Both of the Vanguard funds track the performance of the MSCI U.S. Investable Market Health Care Index. This index consists of all capitalization of stocks within the health care sector. This sector industry includes companies that manufacture health care equipment and supplies or provide health care related services.  Their top holdings include, Johnson & Johnson, Amgen, Pfizer, Merck, UnitedHealth, Medtronic, Wyeth, etc. 

The number of ETF options in the health care sector are amazingly and surprisingly broad.  There are ETFs for the following areas: Biotech (IBB), Global Health Care (IXJ), Medical Devices (IHI), Pharmaceutical (IHE), Healthcare Provider (IHF), Diagnostic Devices (HHD), Cancer (HHK), Cardio Devices (HHE), Respiratory/Pulmonary (HHR), Neuroscience (HHN), Auto-Immune/Inflammation (HHA), European Drugs (HRJ), Orthopedic Repair (HHP), Infectious Disease (HHG), Dermatology (HRW), Metabolic/Endocrine (HHM), Emerging Cancer (HHJ) and Ophthalmology (HHZ). 

Be careful to watch the fees on some of these ETFs – they range from 0.40% to over 1%.  And many of them have low daily volume which leads to the spread between the bid ask being fairly large which means you’ll lose even more money buying/selling them.  If you don’t know why you are buying the Dermatology ETF, then you probably shouldn’t be buying it.

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