The XHS ETF (SPDR) created in 09/2011 replicates an index based on a selection of 51 specialized stocks in the US healthcare services. The tracked index is the S & P Health Care Services Select Industry Index. This is a highly specialized index from a geographic perspective, consisting primarily of US stocks and quoted in USD on the NYSE.
The fee for this ETF is 0.35% and the AUM is approximately $ 89M. The replication method is direct and there is a dividend distribution policy on a quarterly basis.
Alternative ETFs: IHF (iShares in USD)
Index & components
The XHS ETF (SPDR) replicates an index consisting of a selection of 51 US specialty health services (37%), care management (26%), care infrastructure (23%) and distribution medical equipment (14%).
This is a highly specialized index from a geographic point of view, composed mainly of US stocks and quoted in USD, but quite diversified from the point of view of the sub-sectors of activity and the number of companies whose the top 10 capitalizations represent only 28% of the index. The first capitalization, Molina Healthcare (chain of clinics) weighs only 3%.
This sector has the particularity of being quite defensive because it depends little on economic growth. However, medical care in the US is quite expensive and not always fully covered by insurance, so the sector could be possibly impacted by a severe and lasting economical crisis. Health is also a regulated market and the administration can influence the service market by legislating on taxes and the health insurance system.
The historical performance of XHS is very satisfactory and shows a progression of about 130% since its creation in 2011. The market capitalizations are quite high ($ 17bn on average), and the multiples are quite reasonable at about 18x the net results at 12 months forward , while earnings growth prospects at 3-5 years are 12% on average.
The main growth drivers are naturally the aging of the population and the dependency of the elderly, chronic diseases as well as the technology that allows advanced screening and the establishment of long-term treatments. The specialization of medical centers (dialysis, cancer ...) involves specific infrastructures and equipment that increase the barriers to entry, while access to technology and personnel management are also key in this industry, which tends to consolidate.
Latest developments
The performance was poor in 2016 (-8.6%) due to the political uncertainties concerning US health policy, but XHS has grown by 9.6% since the beginning of the year despite the persistent lack of visibility on the evolution of the health coverage of Americans, while D.Trump failed twice to validate its reform of Obamacare by the US Congress, yet a Republican majority who rejected the amendments. But the US president has just signed a decree to circumvent certain obligations imposed by the Obamacare, the reform of the health protection system that he failed to cancel by the Congress, and insurers can now offer covers that do not support certain medical risks. In addition, Donald Trump plans to cut the funding of insurers who continue to offer Obamacare covers. Without this funding, valued at $ 7 billion, these insurers could be forced to stop offering "Obamacare" coverages.
The climate is both negative and more uncertain than ever in the health coverage of Americans, which promises to be reduced despite congressional opposition. This reduction in health coverage is expected to have a definite negative impact on the US health care sector over the next few quarters, but remains difficult to assess.
