Is SPDR S&P Health Care Equipment ETF (XHE) a Strong ETF Right Now?

Making its debut on 01/26/2011, smart beta exchange traded fund SPDR S&P Health Care Equipment ETF (XHE) provides investors broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Managed by State Street (NYSE:STT) Global Advisors, XHE has amassed assets over $746.03 million, making it one of the average sized ETFs in the Health Care ETFs. Before fees and expenses, this particular fund seeks to match the performance of the S&P Health Care Equipment Select Industry Index.

This Index represents the health care equipment and supplies sector of the S&P Total Market Index. The Index is one of nineteen S&P Select Industry Indices, each designed to measure the performance of a narrow sub-industry or group of sub-industries as defined by the GICS.The Health Care Index is a modified equal weight index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.35% for XHE, making it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 0%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.

When you look at individual holdings, Irhythm Technologies Inc. (NASDAQ:IRTC) accounts for about 1.92% of the fund's total assets, followed by Cryoport Inc. (CYRX) and Conmed Corporation (NYSE:CNMD).

XHE's top 10 holdings account for about 14.91% of its total assets under management.

Performance and Risk

So far this year, XHE return is roughly 7.66%, and is up about 15.96% in the last one year (as of 11/22/2021). During this past 52-week period, the fund has traded between $104.51 and $133.34.

The fund has a beta of 0.91 and standard deviation of 24.44% for the trailing three-year period, which makes XHE a medium risk choice in this particular space. With about 88 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Health Care Equipment ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

First Trust Indxx Medical Devices ETF (MDEV) tracks INDXX GLOBAL MEDICAL EQUIPMENT INDEX and the iShares U.S. Medical Devices ETF (IHI) tracks Dow Jones U.S. Select Medical (NYSE:SEM) Equipment Index. First Trust Indxx Medical Devices ETF has $3.95 million in assets, iShares U.S. Medical Devices ETF has $8.78 billion. MDEV has an expense ratio of 0.70% and IHI charges 0.41%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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