Health Care ETF: Does An Aging Population Guarantee a Win?
The cost of health care tends to be a rather sore subject, but few people would argue that the industry in general has experienced massive growth over the past few decades. Few would also argue against the opinion that it will only continue to grow or develop at this same pace far into the future. This means that someone who chooses to invest in a health care exchange traded fund (ETF) is going to have exposure to this highly lucrative industry as a whole.
Consider that health care is among the fastest growing sectors of the United States economy. While it is difficult to say that the as an investment health care will outperform, it seems safe to say that the risk negative returns is unlikely. And, of course, risk is further reduced through the diversification that a health care ETF can provide due to its holdings in multiple companies.
It is also interesting to note that a health care ETF can allow someone to offset or hedge against personal health care costs. For instance, someone with diabetes or a heart condition could perform some research to see which funds are investing in companies directly related to their condition. By doing this, they would be “paying themselves” through their health care costs via returns from their investment in the ETF.
Is it recommended to use a health care ETF even though it is more concentrated than a broad-based ETF that tracks something like the S&P 500? That'll depend largely on your investment style. If you're the sort of investor that watches the market and can dedicate time to understanding what might drive the health care sector up or down, then such an ETF could be right for you. And proper research will offset the added fees from higher expense ratios as compared to those of an ETF with a broader focus.
With sector ETFs it makes sense to review the prospectus to ensure coverage meets your expectations. You'll want to make sure that the investment manager hasn't overweighted holdings in a way that you disagree with. It takes only a short time to look at the data and to determine if the fund is suitable to the needs of the individual investor.