Healthcare has been one of the hottest sectors in the financial markets over the past few months. Key exchange-traded funds in this sector have seen returns ranging from 10.54% to 18.08%. Two of the most popular ETFs used by retail investors to track this sector are the iShares U.S. Healthcare ETF (IYH) and the Healthcare Select Sector SPDR ETF (XLV).

The IYH ETF is used by many retail traders to gain exposure to U.S. healthcare equipment and services, pharmaceuticals and biotechnology companies. As of of June 25, 2014, the fund sector breakdown was divided between 68.18% pharmaceuticals & biotechnology and 31.70% healthcare equipment & services.

Performance of IYH

Taking a look at the chart of IYH, you’ll see that it has been trading within a very strong uptrend over the past five years. You’ll also notice that it is trading near all-time highs, and based on its chart, it doesn’t look like this trend will end anytime soon. Taking a look at the Relative Strength Index, the MACD and the bullish divergence between key long-term moving averages confirms that the upward momentum is likely to continue.

Components of iShare U.S. Healthcare ETF

When looking for ideas for investing in the healthcare sector, it's a wise move to investigate the top holdings of key ETFs, such as IYH. The table below shows its top holdings.

Company

Weight (%)

Johnson & Johnson Inc. (JNJ)

11.97

Pfizer Inc. (PFE)

7.60

Merck & Co. Inc. (MRK)

6.88

Gilead Sciences Inc. (GILD)

5.03

Amgen Inc. (​AMGN)

3.62

Source: iShares.com

Taking a look at the chart of JNJ, which is the ETF’s largest holding, you’ll see that it is trading near all-time highs. Based on the technical indicators it doesn’t seem like this trend is about to reverse and it wouldn’t be surprising to see long-term traders protect their positions by setting a stop-loss order below the 200-day moving average, which is currently at $93.66. Given that there is no overhead resistance, the trend is definitely in the upward direction, and ETFs such as IYH will continue to benefit until key indicators confirm a reversal in the uptrend. (For more, see: The ABCs of Risk Management.)

Another key holding of the IYH fund is Merck & Co., which is also trading near all-time highs and looks positioned to make a continued move higher. As you can see from the chart below, the 50-day and 200-day moving averages are diverging and the price is currently testing the near-term swing high of $59.39. If the bulls are able to send the price above this level on significant volume then there would be little overhead resistance that would prevent a move toward the mid $60 level. (For more on how to use these indicators, see: Trading With Moving Averages.)

The Bottom Line

As shown on the chart of the iShares U.S. Healthcare ETF above, companies within the healthcare sector seem to be poised to make a move higher. Based on the analysis of key holdings such as Johnson & Johnson and Merck & Co., this sector should be near the top of any active traders' watch list. (For more, see: Evaluating Pharmaceutical Companies.)

Related Articles
  1. Chart Advisor

    Healthcare Stocks Continuing To Outperform

    These healthcare stocks are still on fire, with potentially more upside left. But is that actually bad for the stock market?
  2. Chart Advisor

    Healthcare Stocks On The Move

    These four healthcare stocks are showing above-average performance.
  3. Mutual Funds & ETFs

    Investing In The Healthcare Sector

    Perform a thorough checkup to uncover a medical stock with a clean bill of health.
  4. Stock Analysis

    Hologic: An Activist Investment Analysis (HOLX)

    Read about a health care company that attracted activist investors Carl Icahn, Barry Rosenstein and Ralph Whitworth at the same time.
  5. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  6. Your Practice

    Advisors: $240B in Fees Up for Grabs by 2030

    Advisors have an opportunity to win generational assets over the next 15 years. Here are some tips on how to cater to different demographics.
  7. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s a quick review of what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
  8. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  9. Investing News

    Stryker Corporation: A Strong Capital Position

    A discussion on business operations, financials, valuation and growth trends for Stryker Corporation.
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Does dental insurance cover implants?

    Dental implants have become a widely used procedure in dentistry. Despite their popularity, however, they tend to not be ... Read Full Answer >>
  3. Does dental insurance cover dentures?

    Most full dental insurance policies include some restorative coverage, usually meaning that up to 50% of the cost of dentures ... Read Full Answer >>
  4. Can CareCredit be used for family members?

    CareCredit has become a widely used option when it comes to paying for medical procedures, primarily procedures not typically ... Read Full Answer >>
  5. Can a Flexible Spending Account (FSA) be used for dental?

    Flexible Spending Accounts (FSAs) can be used to pay for dental expenses including deductibles and co-payments with pretax ... Read Full Answer >>
  6. Does dental insurance cover braces?

    Most regular dental plans cover little to none of the costs of braces. The primary focus of regular dental plans is prevention ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center