iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF) is an exchange traded fund launched by BlackRock, Inc. and is managed by BlackRock Fund Advisors. The fund has a net asset over $1.3 billion which it has invested in public equity shares of companies primarily engaged in healthcare services and managed healthcare (including healthcare facilities). Together these two sectors account for around 93 percent of IHF’s portfolio. Remaining 7 percent is invested in companies engaged in the business of healthcare technologies, and Life sciences tools & services too.
iShares U.S. Healthcare Providers ETF pays quarterly dividends on a regular basis. However, the yield is extremely low – 0.56 percent and 0.76 percent average yield over the past three and five years respectively. As a long term investment strategy, the fund invests in growth and value stocks of companies, mostly in S&P 500 companies. Thus, IHF is suitable only for growth seeking investors, not for income seeking investors.
Over the past 15 years, IHF successfully mimicked its benchmark index – Dow Jones U.S. Select Health Care Providers Index (composed of U.S. equities in managed healthcare, healthcare facilities, healthcare technologies sector). Since its inception in May, 2006, IHF generated a very healthy annual average return of 12.07 percent, compared to 12.53 percent of its benchmark index. This minor difference is due to IHF’s expense ratio of around 0.42 percent.
IHF has a 60-month beta of 0.95 (against S&P 500), which suggests it is a low risk fund. Companies included in IHF’s portfolio generated strong sales, and earnings growth of around 10 percent and 17 percent respectively. P/E of 19.08, and Price/Book of 2.93 suggests that it has already generated enough interest from the investors. The moving averages suggest that IHF’s stock has a potential to move upwards in the short run. Incidentally, all the long term moving averages are placed much below the short term moving averages.
iShares U.S. Medical Devices ETF has consistently generated an average annual return in excess of 16 percent. Average annual return of 16.91 percent, 16.46 percent, and 16.43 percent over the past three, five, and ten years, surely makes IHF a standout performer. Incidentally, this fund not only generated a strong return, but also outperformed S&P500 during the above periods. This leads us to further scrutinize its holdings, and understand the reasons behind such exceptional growth.
iShares U.S. Medical Devices ETF is one of those rare healthcare ETFs which has been able to record high growth rates during the pandemic. Healthcare sector as a whole had seen a steep fall in March 2020, and then some of the stocks bounced back, and some are still recovering. IHF has been able to nullify the impact of the pandemic due to its concentration on managed healthcare and healthcare services. This healthcare ETF generated a price growth of 17.3 percent during the past 12 months, whereas most other healthcare funds lost their value.
Companies engaged in Medical Device & Diagnostics, Healthcare Equipment & Supplies, Managed Healthcare and Healthcare Services, delivered a positive price growth in the past one year, whereas companies engaged in the business of Life Sciences Tools & Services, Biotechnology, Pharmaceutical, and Healthcare Technology had a very poor year.
IHF’s more than 76 percent portfolio is invested in 12 companies from managed healthcare and healthcare services – UnitedHealth Group Inc. (UNH), CVS Health Corp (CVS), Anthem Inc. (ANTM), Cigna Corp (CI), Centene Corp (CNC), Humana Inc. (HUM), HCA Healthcare Inc. (HCA), Laboratory Corporation of America (LH), Molina Healthcare Inc. (MOH), Quest Diagnostics Inc. (DGX), Universal Health Services Inc. (UHS), and Tenet Healthcare Corporation (THC).
Interestingly all these 12 stocks recorded a price growth in excess of 150 percent since IHF’s inception. However, it will be more appropriate to track the short and medium term returns of these stocks, assuming all these stocks will not have been part of IHF’s portfolio since its inception. I find that barring HUM, and CI, all other stocks generated a double digit growth rate over the past 12 months. During the past five years, barring UHS, all other stocks have on an average grown in excess of 6 percent. For 7 (UNH, ANTM, CNC, HUM, HCA, MOH and THC) out of those 12 stocks, the growth rate was more than 16 percent.
However, this ETF is highly dependent on the return of its super stock – UNH, which constitutes around 23 percent of IHFs portfolio. As UNH generated approximately 35 percent, 27 percent, and 16 percent over one year, three years, and 5 years respectively, it has enabled IHF to deliver a steady and strong price performance.
Covid-19 pandemic seems to have a positive impact due to the increased need for healthcare services and healthcare providers. In addition, as people are becoming more aware and healthcare agencies are placing more emphasis on early diagnosis and treatment of chronic diseases, the demand for managed healthcare and healthcare services will continue to grow.
Historically, this fund has been one of the best performers, and one of those rare funds to nullify the impact of the pandemic and record significant growth in the past three years. While many other healthcare funds lost their value, price growth of 17.3 percent during the past 12 months makes IHF a standout performer. IHF’s portfolio of investments have also been extremely productive in medium and long term, and outperformed the returns of S&P500. Generating a growth rate in excess of 16 percent on a consistent basis is no small achievement, and growth seeking investors will like that. Technical indicators also suggest a steady bullish run. Investors too, seem to be very optimistic about the future performance of this ETF. Thus, as a growth seeking investor, I’d certainly like to keep iShares U.S. Medical Devices ETF in my portfolio of investments.