Make Money in Growing Health Care Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to thrive over time as baby boomers get older and need more medical attention, and as the world's overall population grows and ages, the First Trust Health Care AlphaDEX ETF (ASE: FXH) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.70%, which is a bit higher than many ETFs, but also considerably lower than the typical stock mutual fund.

This ETF has performed reasonably, but it's also very young, with just a few years on the books. It outperformed the S&P 500 over the past three years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

What's in it?
Several health-care companies have had strong performance over the past year. Intuitive Surgical (NAS: ISRG) gained 46% as more and more hospitals bought its robotic surgery equipment, which provides the company with reliable recurring revenue as the hospitals repeatedly need to purchase supplies and service contracts for the machines. Alexion (NAS: ALXN) surged 86% and holds a lot of promise, generating profits, facing few competitors, and fighting rare diseases. But some see the stock as having gotten ahead of itself and worry about a slowing growth rate.

A longtime dividend powerhouse, Abbott Labs (NYS: ABT) advanced 23% and is splitting itself into two companies, each in a very promising field: medical devices and pharmaceuticals. Abbott's new pharmaceutical company will be depending on anti-inflammatory-disease drug Humira for a huge chunk of earnings, though, which is a bit risky.

Other companies didn't do as well last year, but could have an effect in the years to come. Hospital operator Tenet Healthcare (NYS: THC) , for example, shed 19%. It has been carrying a lot of debt, but has been working on paying it down, though bad debt hasn't been falling as some would like to see. Others, however, are bullish on the company's strategy of growing via acquisitions.

The big picture
Demand for health-care products and services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn aboutthe 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these12 Dividend Stocks for 2012.

At the time thisarticle was published

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.