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Investment Profile

A Healthcare ETF Full of Companies That Help Humans Live Long & Prosper

  • Live Long & Prosper is an ETF focused on the health care industry
  • The fund contains assets from companies such as Johnson & Johnson, Merck, and United HealthCare
  • An aging population, along with increasing health care spending, means big potential returns
3 min read

Everybody needs healthcare services at some point in their lives, whether it’s a routine doctor or dentist visit, a prescription drug to help heal an illness, or something more complex like surgery.

In fact, healthcare is one of America’s largest industries. By 2026, spending on health care will jump to $5.7 trillion, according to U.S. federal government projections.

It’s a huge, highly profitable business for numerous companies. And because everyone needs medical care, it’s always going to be in demand. The healthcare system and its associated companies have a broad reach, and includes the biotech, pharmaceutical, insurance, and medical providers and devices industries, among others.

All are industries aiming to help us live longer and prosper. A phrase with a nice, familiar ring to it.

For these reasons, the healthcare field is highly attractive to investors. And you can get in on the action with Live Long & Prosper (ticker: XLV) on Stash.

What’s in the fund?

Live Long & Prosper is Stash’s name for the Health Care Select Sector SPDR® Fund, an exchange-traded fund that tracks health care stocks in the S&P 500.

With an aging population — there are more than 50 million Americans over 65, and by 2060, there will be 98 million, or nearly one-quarter of the population–the healthcare industry (along with associated spending) is expected to grow concurrently.

That means big potential returns for health care companies and investors whose portfolios contain those companies.

The fund’s holdings include 61 companies, both big and small, in the healthcare sector. Among the fund’s largest holdings are conglomerates like Johnson & Johnson, which generates revenue from prescription drugs, medical devices, and consumer products like Neutrogena, Band-Aids, and Tylenol. There’s also Pfizer, a 150-year-old global company that makes medications including Viagra and Lipitor, vaccines, and consumer products such as Advil, ChapStick and Centrum. The fund also contains the stock of one of the country’s biggest insurers, United HealthCare.

More than 43% of the fund’s holdings are in pharmaceutical companies, 23.3% are in healthcare equipment manufacturers, and 17% are in healthcare providers.

Performance

The fund, which launched in 1998 and has $15.3 billion of assets, is the oldest and largest of its kind. It’s managed by State Street Global Advisors, according to the fund prospectus.

As the healthcare costs have increased, so have earnings for healthcare companies. And returns for holders of Live Long & Prosper. Recent market volatility has put a damper on the fund’s performance, however, as its year-to-date return is -1.2% as of April 2018, according to Morningstar.

The fund has a history of strong returns. In 2013, for example, it returned 41.4%, though that isn’t typical. In 2017, the fund returned 21.77%, and year-to-date, as of April 2018, the fund is actually down -1.2%.

Similar funds

There are numerous other funds focused on the healthcare industry. One is the Vanguard Health Care ETF (ticker: VHT), which tracks the MSCI U.S. Investable Market Health Care 25/50 Index.

VHT contains many of the same assets as Live Long & Prosper, including stocks from big companies like Johnson & Johnson, UnitedHealth, and Merck. And as a result, its returns have followed a similar trajectory.

Year-to-date, as of April 2018, VHT is down -0.16%, according to Morningstar. But in 2017, it had a return of 23.26%. And, like Live Long & Prosper, 2013 was also VHT’s strongest year since 2008, during which it posted a return of 42.67%.

Risks and considerations

The world of healthcare is enormously complicated. Though investing in the industry looks like a slam-dunk, there are plenty of things to consider before going all-in.

Changing laws and regulations, for one, are likely to have a big impact on the sector going forward. Given all of the controversy surrounding the Affordable Care Act, and the recent (and possible) upcoming attempts to amend or repeal the law, healthcare stocks could become more volatile than many investors are comfortable with.

For example, stocks took a wild ride during the most recent congressional push to repeal the Affordable Care Act, soaring only after a replacement plan was voted down in the Senate.

Aside from industry concerns, there’s also risk centered around the fund’s lack of diversification. It’s 61 total holdings are all U.S.-based, and it only invests in one sector.

The fund has an expense ratio of 0.13%, which is well below average, according to industry data.

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By Sam Becker
Sam Becker is Stash's financial writer.

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This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

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All ETFs are subject to risk, including possible loss of principal. The Health Care Select Sector SPDR® Fund (symbol: XLVIV) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index. The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the Standard & Poor’s 500 Composite Stock® Index (“S&P 500®”). The ten Select Sector Indexes (each a “Select Sector Index”) upon which the Select Sector SPDR Funds are based together comprise all of the companies in the S&P 500. Sector ETF products are subject to sector risk and non-diversification risk, which generally result in greater price fluctuations than the overall market. XLVIV bears a higher level of risk than more broadly diversified funds. Non-diversified funds that focus on a relatively small number of securities tend to be more volatile than diversified funds and the market as a whole. Fund information reported as of February 21, 2017.