The XHS ETF (SPDR) created in 09/2011 replicates an index based on a selection of 48 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 $ 96M. The replication method is direct and there is a dividend distribution policy on a quarterly basis.
Alternative ETF: IHF (iShares in USD)
Index & components
The XHS ETF (SPDR) replicates an index consisting of a selection of 48 US specialty health services (38%), 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
Performance was poor in 2016 (-8.6%) due to political uncertainties regarding US health policy, but XHS rose 17.4% in 2017 despite the lack of visibility and posted a spectacular 20.6% increase % in 2018. The health sector is currently favored by investors because of its defensive nature and its immunity in the event of a proven trade war with China and Europe (virtually no exports). In addition, the sector is also attractive because it is one of the main beneficiaries of tax credits of the Trump administration.
