When thinking about how to balance a long-term savings vehicle, such as your Self-Managed Super Fund, assets which align with broader socio-economic trends are infinitely attractive. Creating a recurring contribution to a diversified fund gives confidence to more active value-seeking elsewhere in your portfolio.
The performance of the iShares Global Healthcare ETF (ASX: IXJ) and the BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG) make them great additions to an SMSF portfolio.
What is driving these global healthcare ETFs higher?
The S&P/ASX 200 Health Care (ASX: XHJ) index has increased in value by almost 225% in 10 years. To put that in context, the broader ASX 200 index, S&P/ASX 200 (ASX: XJO), has increased just 12% over the same period.
To break that down annually, the health care index has put on an impressive 13% on average every one of those ten years in contrast to just 2% per annum for the broader ASX 200.
Healthcare has historically had a reputation as a defensive stock class. People still get sick during recessions, the unemployed still use toothpaste. However, increasing application of technology and growing demand from demographic change has supported strong growth.
The World Bank estimated that from 2000 to 2015 expenditure on healthcare grew from 8.5% to 10% of global GDP. With aging populations around the globe and increasing wealth, increasing healthcare expenditure as a % of GDP offers the potential for long term market-beating appreciation.
ETFs to make you healthy and wealthy
So, you've decided healthcare exposure is what you're after. There a couple of options on the ASX which provide access to the global market.
Firstly, offered by Blackrock, the iShares Global Healthcare ETF share price has averaged 11.44% across the last 10 years.
A second option, added to the boards in just August 2016, is BetaShares Global Healthcare ETF. The BetaShares offering has put on around 20% since its inception, around 7% per annum.
It should be noted that iShares and BetaShares ETFs both have around 70% exposure to the United States, where the worlds largest pharmaceutical companies are domiciled. As such, they may both be sensitive to headwinds in that market, should any appear.
As with any type of fund, returns must be viewed in the context of the fees which they offer. Both funds have management expense ratios (MERs) of just less than 0.5%, on the mid to lower end of the fees for ETFs tradable on the ASX.
Foolish Takeaway
Utilising a passively managed fund to add easy diversification is now gospel in investing. Global Healthcare ETFs, such as iShares and BetaShares Global Healthcare offer diversified access to companies benefitting from underlying economic growth and demographic change. As such, they can make great additions to your SMSF, and beyond.
