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Healthcare services ETFs see strong demand

The healthcare service sector’s resilience over the last few years has not gone unnoticed with investors in recent years, according to Markit’s Simon Colvin.

The five ETFs which track healthcare equipment and services have seen their cumulative AUM pass the USD1 billion mark for the first time this year. These funds have already surpassed last year’s inflow total, with USD345 million of net inflows in the first five months of the year.
So far this year, investors have favoured the devices part of the sector, with the iShares US Medical Devices ETF topping the inflow chart with USD236 million of new assets. The second largest fund in the sector, the US Health Care Providers ETF also from iShares, has seen strong inflows with USD34 million of new assets.
This bet looks to be a good one as both these funds have outperformed the S&P 500 index since the start of the year.
Interestingly for a sector with such broad potential, demand to borrow constituents of the Healthcare Providers ETF has remained persistently high over the last 18 months. Currently demand to borrow shares in the constituent companies stands at 4.3 per cent of shares outstanding, over twice the average seen in the S&P 500 index. Despite recent buoyant PMI readings, demand to borrow shares has actually picked up 14 per cent since the beginning of the year.
As ever in the medical sector, short interest is concentrated towards small, volatile companies which have failed to live up to analyst expectations over the last few quarters. In fact, the six firms with more than 105 of their shares shorted have an average market cap of USD1 billion, compared to a total of USD7 billion across the 50 constituents.
Presently seeing the highest demand to borrow in the fund is Bio-Reference Laboratories, which has over 23 per cent of its shares out on loan. The company, which provides diagnostics services, saw its shares tumble by a quarter in the closing month of last year after disappointing third quarter earnings.
Also seeing heavy demand to borrow in the sector is Healthways, which offers such products as “Silver Sneakers” which aim to improve patient wellbeing. The firm now has an all-time high demand to borrow after reporting two loss making quarters. Shorts have stayed the course in the last three months despite the fact that the company reported better than expected revenues in the last quarter, which saw its shares rally.
On the large cap end of the sector, all eight companies whose market cap stands greater than USD10 billion have above average short interest.

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