Health and wellness sectors are growing rapidly, driven by advancements in biotechnology, healthcare services, mental health, and fitness. Investing in health and wellness ETFs (exchange-traded funds) allows you to gain exposure to these high-growth areas with diversified holdings, reducing risk compared to individual stocks. This guide provides a step-by-step approach to building a diversified portfolio using health and wellness ETFs to capture the sector’s long-term potential.
1. Understand the Types of Health and Wellness ETFs
Before diving into specific ETFs, it’s important to understand the different categories within health and wellness:
- Biotech ETFs: Focus on companies developing new drugs, gene therapies, and cutting-edge medical technologies.
- Healthcare ETFs: Include companies across the healthcare sector, such as pharmaceuticals, healthcare providers, and equipment manufacturers.
- Pharmaceutical ETFs: Concentrate on major drug companies involved in producing medications and vaccines.
- Medical Devices ETFs: Focus on companies that manufacture and develop diagnostic equipment, surgical tools, and other medical technologies.
- Health and Wellness Lifestyle ETFs: Cover fitness companies, health-focused consumer products, and telehealth providers.
- Tip: Consider the different sub-sectors that align with your investment goals and risk tolerance when selecting ETFs.
2. Choose Core Health and Wellness ETFs for Stability
Core health and wellness ETFs offer broad exposure to large, established companies, providing a stable foundation for your portfolio. These ETFs often hold blue-chip healthcare stocks, which tend to perform well over the long term, making them suitable as core holdings.
- Top Core Health and Wellness ETFs:
- Health Care Select Sector SPDR Fund (XLV): Provides exposure to major healthcare companies, including pharmaceuticals, biotech, and medical devices.
- iShares U.S. Healthcare ETF (IYH): Covers a broad range of large U.S. healthcare companies, providing stability and consistent returns.
- Vanguard Health Care ETF (VHT): Offers exposure to the entire U.S. healthcare sector, including pharmaceuticals, biotech, and health services companies.
- Why Include Them: These ETFs offer stability through holdings in established companies like Johnson & Johnson, UnitedHealth Group, and Pfizer. They are well-suited as core holdings for a diversified portfolio.
3. Add Biotech ETFs for High-Growth Potential
Biotech ETFs offer higher growth potential but come with increased volatility. These funds typically focus on companies developing innovative treatments, including gene editing, immunotherapy, and precision medicine. Biotech is one of the fastest-growing segments within health and wellness, making it a great addition for those looking to capitalize on cutting-edge advancements.
- Top Biotech ETFs:
- iShares Biotechnology ETF (IBB): Provides exposure to large and mid-sized biotech companies, including Amgen, Gilead Sciences, and Regeneron.
- SPDR S&P Biotech ETF (XBI): Holds a diversified mix of biotech companies, with an equal-weighted approach that provides exposure to small and mid-cap stocks, offering high growth potential.
- ARK Genomic Revolution ETF (ARKG): Focuses on companies involved in gene therapy, DNA sequencing, and bioinformatics, with holdings in firms like CRISPR Therapeutics and Editas Medicine.
- Why Include Them: Biotech ETFs can drive growth in your portfolio by tapping into the future of medicine and genetics. They are ideal for investors with a moderate to high risk tolerance.
4. Include Pharmaceutical ETFs for Dividend Income
Pharmaceutical ETFs tend to hold large, established drug companies with solid revenue streams and dividend payments. These ETFs are typically less volatile than biotech ETFs and provide stable income, making them suitable for income-focused investors.
- Top Pharmaceutical ETFs:
- VanEck Vectors Pharmaceutical ETF (PPH): Focuses on global pharmaceutical companies, including Pfizer, Novartis, and Merck, which provide both growth and dividend potential.
- iShares U.S. Pharmaceuticals ETF (IHE): Invests in leading U.S. pharmaceutical companies, making it a good option for domestic exposure.
- Invesco Dynamic Pharmaceuticals ETF (PJP): Uses a dynamic, active weighting strategy to invest in top pharmaceutical companies.
- Why Include Them: Pharmaceutical ETFs offer lower risk and generate income through dividends, providing a solid balance in a diversified health and wellness portfolio.
5. Consider Medical Devices ETFs for Consistent Growth
Medical devices play an essential role in healthcare, and ETFs in this space provide exposure to companies that manufacture diagnostic tools, surgical equipment, and monitoring devices. This segment offers growth and stability, given the consistent demand for medical devices.
- Top Medical Devices ETFs:
- iShares U.S. Medical Devices ETF (IHI): Offers exposure to top medical device companies like Medtronic, Thermo Fisher, and Abbott Laboratories.
- SPDR S&P Health Care Equipment ETF (XHE): Provides exposure to a diversified mix of healthcare equipment manufacturers.
- Global X Telemedicine & Digital Health ETF (EDOC): Invests in companies developing telemedicine, remote care, and digital health tools, an emerging area in medical devices.
- Why Include Them: Medical device ETFs offer consistent growth due to the ongoing need for healthcare technology, making them a smart addition to a diversified health and wellness portfolio.
6. Add Health and Wellness Lifestyle ETFs for Emerging Trends
Health and wellness go beyond traditional healthcare to include fitness, nutrition, and mental health. Lifestyle-focused ETFs invest in companies supporting these areas, including gyms, telehealth, and consumer wellness products, offering exposure to emerging trends.
- Top Health and Wellness Lifestyle ETFs:
- Global X Health & Wellness ETF (BFIT): Invests in companies focused on physical fitness, healthy eating, and wellness.
- Invesco Dynamic Leisure and Entertainment ETF (PEJ): Includes holdings in fitness companies, gyms, and other wellness-related businesses.
- Amplify Digital & Online Consumer ETF (IBUY): Focuses on e-commerce and online retail, including telehealth and wellness product providers.
- Why Include Them: These ETFs provide exposure to growth in wellness and lifestyle trends, appealing to investors interested in capitalizing on the increasing focus on fitness and preventive healthcare.
7. Maintain Balance with International Health and Wellness ETFs
International health and wellness ETFs offer exposure to global healthcare markets, which can diversify risk and provide access to high-growth markets in emerging economies. These funds can help balance your portfolio by providing exposure outside of the U.S.
- Top International Health and Wellness ETFs:
- iShares Global Healthcare ETF (IXJ): Provides exposure to healthcare companies worldwide, including major firms in Europe and Asia.
- VanEck Vectors Healthcare Innovators ETF (HAIL): Focuses on small- and mid-cap healthcare innovators across global markets, including emerging regions.
- SPDR S&P International Health Care Sector ETF (IRY): Invests in large international healthcare companies, including major players in Japan and Europe.
- Why Include Them: International ETFs broaden your portfolio by providing exposure to high-growth opportunities outside the U.S., reducing regional risk.
8. Regularly Rebalance Your Portfolio
Rebalancing your portfolio is essential to ensure your asset allocation remains aligned with your investment goals. Over time, certain ETFs may outperform others, causing your portfolio’s weighting to shift.
- How to Rebalance:
- Set a schedule to review your portfolio every six to twelve months.
- Adjust holdings back to your target allocation to maintain your desired balance between stability, growth, and income.
- Tip: Use rebalancing to lock in gains from well-performing ETFs and reinvest in sectors that may be undervalued.
9. Monitor ETF Fees to Maximize Returns
ETF fees, also known as expense ratios, can reduce your returns over time. Lower-cost ETFs can help you maximize long-term growth by reducing the impact of fees on your portfolio’s performance.
- Typical Fees: Health and wellness ETFs have expense ratios ranging from 0.10% to 1.00%, depending on the provider and focus area.
- How to Minimize Fees: Compare ETFs within each sector and prioritize those with lower fees for similar exposure.
- Tip: Look for core ETFs with the lowest fees, as these will likely make up the largest portion of your portfolio.
10. Stay Updated on Health and Wellness Trends
The health and wellness sector is constantly evolving, with new trends like personalized medicine, mental health awareness, and digital health emerging each year. Keeping up with industry trends will help you identify opportunities for reallocation or new investments in promising ETFs.
- How to Stay Informed:
- Follow reputable health industry news sources.
- Regularly review the holdings and performance of your ETFs, as changes in industry trends may impact their growth potential.
- Tip: Consider consulting a financial advisor to stay on top of trends and make informed adjustments to your portfolio.
Conclusion
Building a diversified portfolio with health and wellness ETFs allows you to capture growth across various segments, from biotech and pharmaceuticals to medical devices and wellness lifestyle trends. By combining core healthcare ETFs for stability, biotech for growth, and lifestyle ETFs for emerging trends, you can create a balanced, resilient portfolio that’s well-positioned to benefit from the growing focus on health and wellness. Remember to rebalance regularly, monitor fees, and stay updated on sector trends to maximize your portfolio’s performance over time.