iShares US Healthcare Suppliers ETF (IHF): Dashboard For January

0

Tom Werner/DigitalVision via Getty Images

This monthly article series features a dashboard of aggregated healthcare industry metrics. It can also serve as a top-down analysis of a number of healthcare ETFs, such as the Health Care Select Sector SPDR ETF (XLV) and the iShares US Healthcare Providers ETF (IHF), whose largest holdings are used to calculate these metrics.

shortcut

The next two paragraphs in italics describe the dashboard methodology. They are required for new readers to understand the metrics. If you are used to these series or short on time, you can skip them and go to the charts.

base metrics

I calculate the median of five fundamental metrics for each industry: Earnings Yield (“EY”), Sales Yield (“SY”), Free Cash Flow Yield (“FY”), Return on Equity (“ROE”), Gross Margin ( “GM”). The reference universe includes large companies in the US stock market. The five basic key figures are calculated for the last 12 months. The same applies to everyone: higher is better. EY, SY, and FY are medians of the reciprocals of price/earnings, price/sales, and price/free cash flow. They lend themselves better to statistical studies than price-to-something ratios, which are useless or unavailable when the “something” is near zero or negative (e.g., companies with negative earnings). I also look at two momentum metrics for each group: mean monthly return (RetM) and mean annual return (RetY).

I prefer medians to averages because a median divides a set into a good half and a bad half. A cap-weighted average is skewed by extremes and the largest companies. My metrics are designed for stock selection rather than index investing.

Value and quality indicators

I calculate historical baselines for all metrics. They are labeled EYh, SYh, FYh, ROEh, GMh, respectively, and are calculated as average values ​​for an 11-year look-back period. For example, the value of EYh for healthcare providers in the table below is the 11-year average median earnings yield in that industry.

The Value Score (“VS”) is defined as the average % difference between the three valuation metrics (EY, SY, FY) and their baselines (EYh, SYh, FYh). Likewise, the quality score (“QS”) is the average difference between the two quality scores (ROE, GM) and their baseline values ​​(ROEh, GMh).

The values ​​are given in percentage points. VS can be interpreted as percentage of under- or overvaluation relative to baseline (positive is good, negative is bad). This interpretation needs to be treated with caution: the baseline is an arbitrary reference, not an assumed fair value. The formula assumes that the three valuation metrics are equally important.

Current data

The next table shows the metrics and ratings at the end of the last week. Columns represent all of the above and defined data.

vs

QA

EY

HIS

GJ

ROE

GM

Ah

SYh

FYh

ROEh

GMh

RetM

RetY

HC equipment

-32.71

9.78

0.0273

0.1644

0.0234

15.85

67.93

0.0348

0.2916

0.0349

14.26

62.64

-0.0578

0.0425

HC provider

-5.39

-1.12

0.0550

1.1594

0.0654

17.43

21.61

0.0532

1.5003

0.0634

15.96

24.41

-0.0237

0.0246

Pharma/Biotech

1.68

31.44

0.0356

0.2036

0.0473

32.41

80.14

0.0384

0.2625

0.0351

19.87

80.34

-0.0866

-0.1731

life science tools

-37.51

4.49

0.0214

0.1378

0.0235

15.74

59.58

0.0307

0.3032

0.0325

15.49

55.49

-0.0923

0.1968

value and quality diagram

The next chart shows Value and Quality Score by industry (higher is better).

IHF: Healthcare Dashboard For January - Value and Quality in Healthcare

value and quality in healthcare

Chart: Author; Data: Portfolio123

development since last month

Since last month, value scores have deteriorated in healthcare providers, pharma/biotech and improved in life science tools.

IHF: Healthcare Dashboard for January - fluctuations in value and quality

fluctuations in value and quality

Chart: Author; Data: Portfolio123

momentum

The next chart shows impulse data.

IHF: Healthcare Dashboard for January - Healthcare momentum

momentum in healthcare

Chart: Author; Data: Portfolio123

interpretation

The most fundamentally attractive healthcare sub-sector is pharmaceuticals/biotechnology: the near-zero value score means it is in the 11-year average on aggregate valuation metrics. In addition, the quality rating is excellent. However, the momentum is very poor: the median return over the last 12 months for this group of companies is -17%. Healthcare providers are close to their baseline in both score and quality. The next paragraph focuses on an ETF in this industry. Life science tools and medical devices are overstated by more than 30% in my metrics, and quality scores are slightly above baseline.

Focus on IHF

The iShares US Healthcare Providers ETF has followed the Dow Jones US Select Health Care Providers Index since May 1st, 2006. It has a total expense ratio of 0.42%, which is significantly higher than other passive healthcare index ETFs like XLV (0.12%).

As of this writing, the fund holds 73 stocks and is heavily concentrated in a few names. The next table shows the top 10 stocks with their weights, fundamental valuation ratios, and dividend yields. Their total weight is about 75.5%.

ticker

Surname

Weight (%)

EPS growth %TTM

P/E TTM

P / E forward

Yield (%)

UNH

United Health Group Inc

22.47

-7.38

07/29

24.88

1.24

resume

CVS Health Corp

15.48

-5.56

18.57

02/13

2.07

ANTME

Anthem, Inc.

9.68

15.19

20.29

17.43

1.00

THERE

Cigna Corp

5.23

66.60

10.19

11.86

1.65

CNC

centene corp

4.90

-65.67

65.17

15.73

0

HCA

HCA Healthcare, Inc.

4.80

98.72

13.09

14.46

0.75

TO HUM

Humana Inc.

4.00

-33.64

18.92

07/19

0.71

LH

Holdings of Laboratory Corp of America

3.89

227.72

9.80

03/10

0

DGX

Search Diagnostics Inc

2.57

106.18

8.55

24.10

1.74

MOH

Molina Healthcare, Inc.

2.46

-24.45

28.40

21.39

0

The IHF has outperformed the broader sector ETF XLV by 50 basis points on an annualized basis since inception. However, it shows much higher risk in drawdown and volatility. The risk-adjusted performance (Sharpe ratio) is significantly worse.

total return

Annualized return

Maximum drawdown

Sharpe ratio

volatility

IHF

515.53%

12.27%

-58.82%

0.68

19.06%

XLV

473.33%

11.77%

-39.17%

0.83

14.01%

Data calculated with Portfolio123

In summary, IHF is designed for investors seeking capital-weighted exposure to healthcare providers. It can also be used as part of tactical allocation strategies. Three quarters of the portfolio’s value is concentrated in the top 10 holdings and over 47% in the top 3 names. Exposure to risks related to UnitedHealth Group and CVS Health is particularly high. IHF has slightly outperformed XLV since inception, but management fees and risk metrics are significantly higher than for the broad healthcare sector ETF.

Dashboard list

I use the first table to calculate value and quality ratings. It can also be used in a stock picking process to check how companies are performing compared to their peers. For example, the EY column tells us that a large pharma/biotech company with an earnings yield above 0.0356 (or price/earnings below 28.09) is in the better half of the industry on this metric. Each month, a dashboard list is sent to Quantitative Risk & Value subscribers, where the most profitable companies simultaneously rank in the better half of the peer group on the three valuation metrics. The following list was sent to subscribers a few weeks ago based on the data available at the time.

INVA

Innoviva, Inc.

RAIN

Regeneron Pharmaceuticals, Inc.

COLL

College Pharmaceuticals, Inc.

HOLX

Hologic, Inc.

DVA

DaVita Inc.

THC

Tenet Healthcare Corp

OR WALK

Organogenesis Holdings Inc.

S.E.M

Select Medical Holdings Corp

QDEL

Quidel Corp

WHY

uniQure NV

It is a rotating list with a statistical bias towards long-term excess returns, not the result of an analysis of each stock.

You might also like

Leave A Reply

Your email address will not be published.