Q: I am trying to understand what's going on with HHL this year. It's the worst performing ETF in my portfolio, down 12% YTD, almost double the drop of the US-listed VHT which is in my taxable portfolio. HHL is held in RRSP, so no capital loss :( I am wondering whether to keep it for the income, or drop it and buy another healthcare ETF hoping that the healthcare will eventually recover and ETF like VHT will likely recover faster than HHL. Due to underperforming healthcare ETFs, my portfolio allocation in healthcare is now down to 6.5% from the 8% target. Any suggestions/thoughts?
5i Research Answer:
Our data shows VHT down 6.7% YTD and HHL down 10.4% (net). Some of this difference will be currency, but the divergence is not quite as large as noted in the question. Holdings are somewhat similar with some exceptions. The sector has been weak, certainly, and this will impact call option premiums on HHL. But we cannot totally explain the divergence other than through variability in their holdings. VHT does have a higher exposure to the US market (99% vs 91%). If one is expecting a recovery (and it should happen in a different market environment) we would prefer VHT. The income strategy will lag if the sector does recover.