In Wednesday’s trading, Health Care Select Sector SPDR (XLV) stood out among the best ETFs for one factor: It was the only one of 28 members of IBD’s ETF Leaders screen trading above its 50-day moving average.
The October market swoon pushed all top 28 exchange traded funds below their 50-day lines or even their 200-day averages. While funds are bouncing back, most remain below the important 50-day line — except for Health Care Select Sector SPDR.
The ETF is 2% below a new high, battling back from a fast drop of more than 7% earlier this month. The sell-off abruptly ended a flawless advance from a breakout July 24. ETF investors can take advantage of the move back above the 50-day line to buy shares, but market risk is still elevated. The relative strength line is at a new high, which favors the ETF at the moment.
SPDR Health Care might not be above the 50-day line if it weren’t for a couple of strong earnings reports.
Johnson & Johnson (JNJ) surged Tuesday and Wednesday after the company reported adjusted income of $2.05 a share on $20.3 billion in sales, beating expectations. J&J also raised its full-year guidance. Johnson & Johnson is the largest component of SPDR Health Care, with more than 10% of the $18.69 billion portfolio.
Bulk Of Holdings In Pharma, Health Providers
SPDR Health Care has 63 holdings with nearly 32% in pharmaceutical companies. Some 23% is in health care providers and services, 21.2% in medical equipment and supplies, 17% in biotechs, and the rest in life science services and medical technology companies.
Before the October market correction, health care ETFs were seeing bullish momentum. Some 23% is invested in health care providers and services, 21.2% in medical equipment and services, 17% in biotech, and the rest in life sciences services and health care technology.
In an Oct. 4 report, OppenheimerFunds noted that while technology weakened, a backdrop that still favored growth stocks led to a rotation into other industries such as health care. “Investors placed a record $6.7 billion into health care ETFs over the past three months.” Net flows into health care ETFs far outpaced any other sector in the third quarter.
SPDR Health Care is up about 13% this year, lagging the 24% rise in IBD’s Medical sector.