Beware What’s Hiding in a Sector ETF?

Recently, I mentioned that the Healthcare sector contains biotech stocks which behave quite differently from the rest of the sector. The market seems to treat Biotech as more tech than bio. That makes sense to me.

An investor buying the Healthcare ETF (XLV) may not realize how much exposure to tech they’re taking on. I’ve noticed how Healthcare has departed from Consumer Staples in terms of performance (they’re usually quite close), and I suspect that’s in large part due to the enormous rise in Biotech. Perhaps there should be an ETF which is XLV ex biotech.

I noticed ads for a new ETF which is the SPY without Energy. That certainly would have been a good strategy the last several months. Of course, the appearance of that ETF probably signals that the trend is not long for this world.

Here’s a look at the relative strength of the Healthcare ETF (XLV) in black along with the relative strength of the Biotech ETF (IBB) in red. I was shocked by this. While the two lines have similar nooks and crannies, the behavior is very different. It’s as if the IBB is like a highly leveraged XLV.

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Posted by on October 6th, 2015 at 1:18 pm


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