Returns as of 03/05/2022
Returns as of 03/05/2022
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A good way to build wealth is to invest a large sum of money in a couple of exchange-traded funds (ETFs) for not just years but potentially even decades. With ETFs, you can get some excellent diversification without having to own individual stocks or worry about how individual businesses are performing.
If you have $10,000 you can afford to invest, a couple of good ETFs to consider putting that money into are the iShares U.S. Healthcare ETF (NYSEMKT:IYH) and the First Trust Nasdaq Bank ETF (NASDAQ:FTXO). Collectively, they can diversify your portfolio and give you some solid exposure to the top healthcare and bank stocks in the world.
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What is promising about the iShares U.S. Healthcare ETF is that the fund holds many of the top healthcare stocks you would probably own if you invested in the sector anyway. Its top two holdings as of Feb. 4 are industry giants UnitedHealth Group and Johnson & Johnson, a couple of the largest names in healthcare. They each account for more than 8% of the fund’s total weight. Pfizer, a rival COVID-19 vaccine maker to Johnson & Johnson, is the only other stock that accounts for more than 5%.
There are a total of 114 stock holdings in the fund, giving investors much more diversification within the sector than if they were to resort to stock picking all on their own. A little over 28% of the fund is made up of pharmaceutical companies followed by healthcare equipment makers at 21%. Other key segments include biotech, life sciences, and managed healthcare with each one of those groups representing over 13% of the total fund’s weight.
The ETF has a modest expense ratio of 0.41%, and its 12-month yield sits at just over 1%. Over the past five years, the fund hasn’t lagged too far behind the S&P 500, generating a total return (including dividends) of 99% vs. the broader index’s gain of 115%.
However, with a possible return to normal in the economy this year, healthcare stocks have the potential to outperform the S&P 500. And over the long term, it’s a safe place to park your money given the growing importance of healthcare amid COVID-19 and an aging U.S. population; by 2034, according to the U.S. Census Bureau, there will be more Americans who are 65 and older than children under the age of 18.
Another important sector to invest in right now is banking. The First Trust Nasdaq Bank ETF has only 28 stocks, but it contains the biggest names in the industry. Wells Fargo, JPMorgan Chase, Citigroup, and Bank of America each account for at least 4% of the fund’s weight.
The ETF’s expense ratio of 0.6% is a bit higher than the healthcare-focused one, but its yield of around 1.7% is also slightly higher and above the S&P 500’s 1.3% payout. Its total return over the past five years has been a bit underwhelming at just 50%. However, with interest rates now looking to be on the rise, the fund’s returns over the next few years could be a whole lot more impressive.
Goldman Sachs projects that there could be as many as five interest rate hikes in 2022, up from an earlier estimate of four. For banks, this will allow them to pocket more of a spread between the interest rate they pay on deposits vs. what they charge on loans.
Investors who are worried about rising interest rates can potentially benefit from them by investing in a bank-oriented ETF such as the First Trust Nasdaq. Over the longer term, it’s also a great way to bet on the economy; if interest rates are going up, that is normally a good sign that businesses are doing well.
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Stock Advisor launched in February of 2002. Returns as of 03/05/2022.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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