Johnson & Johnson (NYSE: JNJ), one of the world's largest healthcare companies, has underperformed the broader market in 2018. The company's stock is down 3.66% year to date (YTD), while the Standard and Poor's 500 index (S&P 500) is up roughly 7%. However, over the past month, Johnson & Johnson's stock price has looked healthier, returning nearly 7% compared with a gain of just 2.14% for the S&P 500 over the same period.
David Katz, chief investment officer at Matrix Asset Advisors, told Reuters, "We are much more upbeat about Johnson & Johnson today than we were six months ago. ... We definitely think it's an attractive investment opportunity." The company's share price has also recently broken above the neckline of an inverse head and shoulders chart pattern, suggesting further upside momentum. (For more, see: How to Trade the Head and Shoulder’s Pattern.)
Strategically, Johnson & Johnson plans to grow its pharmaceutical business, primarily by expanding its immunology market. Tremfya, the company's latest immunology drug, already claims an 18% market share. The acquisition of Actelion Pharmaceuticals Ltd. in 2017 has increased Johnson & Johnson's offering of hypertension drugs, which now include Opsumit, Tracleer and Uptravi. The company also plans to continue developing a range of new drugs, such as experimental depression drug esketamine.
Investors who want to add Johnson & Johnson to their portfolio should consider purchasing one of these three exchange-traded funds (ETFs) to give their investments a health kick. (See also: How Johnson & Johnson Became a Household Name.)
Launched in 2006, the iShares US Pharmaceuticals ETF aims to provide similar returns to the Dow Jones U.S. Select Pharmaceuticals Index. The fund achieves this by typically investing at least 90% of its assets in securities that are part of the benchmark index. This includes U.S. pharmaceutical companies that manufacture prescription and/or over-the-counter drugs. The ETF allocates 10.43% of the portfolio to Johnson & Johnson, making it the fund's top holding. Pfizer Inc. (NYSE: PFE) and Merck & Co., Inc. (NYSE: MRK) are the two next largest holdings with allocations of 9.22% and 8.19%, respectively.
The iShares US Pharmaceuticals ETF charges investors an annual management fee of 0.43% and has $388.07 million in assets under management (AUM). The fund has a five-year annualized return of 10.04% but is also performing well in the short term. It has returned 12.28% over the past three months and has a YTD return of 5.32% as of August 2018. IHE pays investors a 1.14% dividend. (See also: The Top 5 Johnson & Johnson Shareholders.)
The iShares US Healthcare ETF (NYSEARCA: IYH), formed back in 2000, seeks to replicate the performance of the Dow Jones U.S. Health Care Index. The ETF covers the broad scope of the U.S. healthcare sector well by investing in U.S. pharmaceutical, biotechnology, healthcare services and equipment companies. Like IHE, Johnson & Johnson commands IYH's top allocation with a weighting of 9.69%. UnitedHealth Group Incorporated (NYSE: UNH) and Pfizer round out the fund's top three holdings. IYH's basket provides ample diversification with its 120 holdings.
The iShares US Healthcare ETF has performed consistently over an extended period. It has 10- and five-year annualized returns of 12.95% and 13.5%, respectively, as of August 2018. YTD, the fund has returned an impressive 9.51%, outperforming the broader market (S&P 500) by roughly 2.5% over the same period. IYH has net assets of $2.09 billion and a 0.43% expense ratio. Investors also receive a dividend of 1.08%. (See also: How Dividend-Paying ETFs Work.)
Created in 2004, the Vanguard Health Care ETF is designed to track the performance of the MSCI US Investable Market Health Care 25/50 Index. The fund does this by investing the majority of its assets in securities that make up the underlying index. VHT provides comprehensive exposure to large-, mid- and small-capitalization U.S. healthcare stocks with its 371 holdings. Johnson & Johnson is once again the fund's heavyweight holding with an 8.74% allocation. The ETF's top five holdings carry a combined weighting of nearly 30%.
The Vanguard Health Care ETF has a low management fee of just 0.1%. This expense is more than offset by the fund's 1.25% dividend yield. VHT is the largest of the three funds with $8.96 billion in AUM. As of August 2018, the ETF has a 10-year annualized return of 13.42% and a five-year annualized return of 14.18%. Investors in VHT have also enjoyed a healthy YTD return of 10.09%. (See also: Investing in the Healthcare Sector.)