Best Healthcare ETFs for Q1 2022

CNBS, PSCH, and GERM are the best healthcare ETFs for Q1 2022

Healthcare exchange-traded funds (ETFs) invest in a basket of stocks of companies that provide medical services, develop medical equipment or drugs, offer medical insurance, or facilitate the provision of healthcare to patients. Some notable companies in the healthcare sector include UnitedHealth Group Inc. (UNH), Pfizer Inc. (PFE), and Merck & Co. Inc. (MRK).

Because the majority of healthcare services and products are often seen as necessities rather than as discretionary purchases, the healthcare industry is considered noncyclical. This can make healthcare ETFs a strong position in a defensive portfolio.

Key Takeaways

  • The healthcare sector underperformed the broader market over the past year.
  • The healthcare exchange-traded funds (ETFs) with the best one-year trailing total returns are CNBS, PSCH, and GERM.
  • The top holdings of these ETFs are Tilray Inc., Omnicell Inc., and Alnylam Pharmaceuticals Inc., respectively.

The healthcare ETF universe is composed of about 36 distinct ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). As of Nov. 11, 2021, the healthcare sector, as measured by the S&P 500 Health Care sector index, has underperformed the broader market with a total return of 21.9% over the past 12 months compared with the S&P 500’s total return of 32.1%. The best healthcare ETF, based on performance over the past year, is the Amplify Seymour Cannabis ETF (CNBS).

We examine the top three healthcare ETFs below. All figures below are as of Nov. 11, 2021.

Amplify Seymour Cannabis ETF (CNBS)

  • Performance Over One-Year: 30.4%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 0.56%
  • Three-Month Average Daily Volume: 59,574
  • Assets Under Management: $109.0 million
  • Inception Date: July 23, 2019
  • Issuer: Amplify Investments

CNBS seeks to provide investors with exposure to the global cannabis industry. At least 80% of its holdings are invested in companies that generate 50% or more of their revenue from cannabis and hemp production and related products and services. Many of these companies produce cannabis products focused on medical needs.

The actively managed ETF invests in a basket of equities across the market capitalization spectrum, from microcap to large-cap stocks, and includes exposure to companies focused on medical cannabis and therapeutics. About half of its assets represent two segments of the marijuana industry: cultivation and retail, and investing and finance.

The fund invests in both growth and value stocks. Its top three holdings are Tilray Inc. (TLRY), a Canadian pharmaceutical and cannabis company; Class A shares of WM Technology Inc. (MAPS), a technology and software provider to the cannabis industry; and Canopy Growth Corp. (WEED:TSX), a producer of medical marijuana.

Invesco S&P SmallCap Health Care ETF (PSCH)

  • Performance Over One-Year: 28.6%
  • Expense Ratio: 0.29%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 5,548
  • Assets Under Management: $517.2 million
  • Inception Date: April 7, 2010
  • Issuer: Invesco

PSCH targets the S&P SmallCap 600 Capped Health Care Index. The index is composed of small-cap stocks in the healthcare industry whose companies are engaged in the business of providing healthcare-related products, facilities and services, including biotechnology, pharmaceuticals, medical technology and supplies.

The fund targets growth stocks and has the greatest exposure to the healthcare providers and services segment, followed by healthcare equipment and supplies and biotechnology.

The top holdings of PSCH include Omnicell Inc. (OMCL), a provider of clinical infrastructure and automated systems for healthcare facilities; NeoGenomics Inc. (NEO), a precision oncology testing company; and AMN Healthcare Services Inc. (AMN), a healthcare staffing and talent company.

ETFMG Treatments Testing and Advancements ETF (GERM)

  • Performance Over One-Year: 26.3%
  • Expense Ratio: 0.68%
  • Annual Dividend Yield: 1.07%
  • Three-Month Average Daily Volume: 17,015
  • Assets Under Management: $53.7 million
  • Inception Date: June 17, 2020
  • Issuer: ETFMG

GERM is a multi-cap, blended fund targeting the Prime Treatments, Testing and Advancements Index. The index includes companies that perform research or develop and commercialize treatments, vaccines, or biological testing for infectious diseases.

GERM is fairly concentrated in its largest positions, with the top 10 holdings accounting for just under half of invested assets. Its top holdings include Alnylam Pharmaceuticals Inc. (ALNY), a developer of ribonucleic acid (RNA) interference therapeutics for genetically defined diseases; Laboratory Corp. of America Holdings (LH), operator of a clinical laboratory network; and sponsored American depositary receipts (ADRs) of BioNTech S.E. (BNTX), a German biotechnology company that manufactures immunotherapies.

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