After many twists and turns, the healthcare sector is once again hogging investors’ attention. This is especially true as strong momentum has started to build up in the space, pushing many stocks to multi-year highs.

The optimism comes especially from the shift in investors’ sentiment to defensive sectors like healthcare, which generally outperform during periods of low growth and high uncertainty. The latest spate of disappointing data points to slow and steady economic growth while geopolitical tensions are still looming.

Added to the strength is the release of Senate Republicans' healthcare bill to replace Obamacare. The legislation aims to eliminate taxes on the industry, curb Medicaid funding, reshape subsidies to cover low-income people under private insurance, and offer provisions to stabilize insurance exchanges set up under former president Barack Obama's 2010 healthcare law. Additionally, the surge in Clovis Oncology (CLVS - Free Report) following its positive cancer drug data for Rubraca spread bullishness in the overall sector (read: 4 Stocks & ETFs to Buy on Clovis' Positive Drug Data).

Further, the efforts of Trump’s administration to ease the drug pricing issue, expedite new drug approvals and enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies are driving the rally in the stocks. Moreover, the sector is poised to benefit from other encouraging industry trends including hopes of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending.

Given the encouraging fundamentals, investors should look at some of the top-ranked (Zacks Rank #1 or ‘Strong Buy’ rating) ETFs that target the broad health care segment and are expected to outperform in the months to come. These funds have enjoyed a strong momentum in the year-to-date period and potentially superior weighting methodologies, which could allow these to continue leading the health care space going forward (see: all the Healthcare ETFs here).

Health Care Select Sector SPDR Fund (XLV - Free Report)

The most popular healthcare ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $16.9 billion in its asset base and trades in heavy volume of around 7.9 million shares. Expense ratio comes in at 0.14% annually. In total, the fund holds 63 stocks with heavy concentration on the top firm Johnson & Johnson (JNJ) at 11.9% of the assets while other firms hold less than 6.7% share. Pharma accounts for 35.1% share from a sector look while biotech, healthcare providers and services, and healthcare equipment and supplies make up for a double-digit exposure each. The ETF has gained 17.8% in the year-to-date time frame (read: Trump's First 100 Days: 5 Must See ETF Charts).

Vanguard Health Care ETF (VHT - Free Report)

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 365 stocks in its basket with a double-digit allocation to JNJ. Other firms hold less than 6% share. Pharma takes the largest share at 32% while biotech and healthcare equipment round off the top three spots. VHT has AUM of $6.5 billion and average daily volume of about 208,000 shares. It charges 10 bps in annual fees and expenses and has returned 19% so far this year.

iShares U.S. Healthcare ETF (IYH - Free Report)

This fund provides exposure to 118 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s returns at 11.5% of total assets while other firms account for less than 6.4% share. In terms of industrial exposure, pharma takes the top spot at 34.5%, followed by biotech (22.6%), healthcare equipment (19.2%) and managed healthcare (12.1%). The product has amassed nearly $1.9 billion in its asset base while charges 44 bps in annual fees. It trades in a solid volume of about 208,000 shares a day and is up 18% since the start of the year.

Guggenheim S&P 500 Equal Weight Health Care ETF (RYH - Free Report)

This fund provides equal weight exposure of less than 2% to 61 stocks and tracks the S&P 500 Equal Weight Health Care Index. In terms of industries, healthcare providers and services, and healthcare equipment and supplies takes the top two spots at 29.3% and 27.3% respectively, The fund has accumulated $611.1.8 million in its asset base while it trades in a light volume of around 22,000 shares daily. It charges 40 bps in annual fees and has gained 20.9% in the year-to-date time frame (read: Why Do Equal Weight ETFs Outperform?).

iShares U.S. Healthcare Providers ETF (IHF - Free Report)

This ETF offers exposure to companies that provide health insurance, diagnostics and specialized treatment by tracking the Dow Jones U.S. Select Healthcare Providers Index. It holds 45 securities in its basket with heavy concentration on the top firm United Health (UNH) holding 13.7%. The other firms hold no more than 6.81% of assets. About half of the portfolio is dominated by managed healthcare while healthcare services and healthcare facilities round off the next two spots with a double-digit allocation each. The fund has amassed $570.3 million in its asset base while volume is light at around 22,000 shares per day on average. It charges 44 bps in annual fees and has gained 19% so far in the year.

Bottom Line

Investors should note that healthcare is the second top performing sector so far this year, trailing technology.