Do you consider the health care sector an essential ingredient in your
retirement portfolio? If you answered yes, Pfizer (NYSE: PFE ) likely is at the
top of your list of stocks. With a dividend yield currently above 4% thanks to
a 10% increase of its quarterly payment income investors are surely happy. In
addition, management has set aside an additional $10 billion for share
repurchases, further enhancing shareholder value. But before you pull the
trigger on the worlds largest pharmaceutical company, you might want to consider
some ETF alternatives, given Pfizers pressing need to replace Lipitor . A little
diversification goes a long way. According to my estimation, there are 61
exchange-traded funds with Pfizer as a top-10 holding. Well only look at those
funds where Pfizer is at least a 5% weighting or higher. This narrows the search
to 12 ETFs, a far more manageable number. In deference to diversification, youll
be wise to consider those funds whose scope is wider than just pharmaceutical
companies, but also covers biotechnology, health care plans, medical equipment,
medical labs, research and other related industries. The fund that does the best
job covering the bases in the fewest number of stocks will be the preferred
candidate. In terms of assets under management, the Select Sector Health Care
SPDR (NYSE: XLV ) is the biggest fund with $4.1 billion spread among 52
holdings, including Pfizer, which represents 12.35% of the portfolio. Included
in the top 10 holdings are a biotechnology company in Amgen (NASDAQ: AMGN ), a
health care plan provider in UnitedHealth Group (NYSE: UNH ), and a medical
device company in Medtronic (NYSE: MDT ). Pharmaceuticals comprise 50.4% of the
portfolio, with five additional industries accounting for the rest. In the long
term whether were talking three years, five or 10 XLV has easily outperformed
Pfizer. Only in the past year has Pfizer been able to make up any ground. Where
the fund seems to shine is on the downside. In the past 20 quarters, Pfizer has
had 10 winners and 10 losers; in eight of the 10 quarters with negative
performance, XLV handily beat Pfizer. While XLV might deliver a dividend yield
of only 1.9%, it more than makes up for the shortfall with capital appreciation.
If you simply must have a higher yield, iShares could do the trick. The High
Dividend Equity Fund (NYSE: HDV ) is less than a year old (March 29, 2011,
inception date) and already has more than $1 billion in total net assets. Thats
a huge amount in just 10 months. Its easy to see that investors are interested
in dividends . HDV has a total of 76 holdings, with Pfizer as the second-largest
position at 7.4%. Health care is the largest sector represented at 28.41% of its
overall holdings, and consumer goods is the second-largest sector with 24.15%.
Together, they represent more than 50% of the portfolio. HDVs 30-day SEC yield
is 3.61%, which isnt quite up to speed with Pfizers yield, but its close enough.
If you dont need micro-cap or small-cap representation in your portfolio, this
single ETF could easily cover off your domestic equity needs. Finally, for those
interested in owning Pfizer while also creating a completely passive portfolio,
iShares offers the S&P Growth Allocation Fund (NYSE: AOR ), which seeks
investment results similar to the S&P Target Risk Growth Index. A total of nine
ETFs are part of the allocation, with the iShares S&P 500 Index Fund (NYSE: IVV
) the largest component at 29.34% of the overall portfolio. Pfizer itself
represents 1.44% of the S&P 500 Index Fund, and while its not a huge position,
it does give you a fully diversified investment portfolio with a dividend yield
around 2.4%. Bottom Line Investing in individual companies like Pfizer and PFE
stock itself isnt a bad idea. A few good bets held indefinitely can go a long
way to achieving your retirement goals. However, for those who want to hedge
their bets, the ETFs described above can help you achieve a greater sense of
balance and safety and in cases like the XLV, better performance. As of this
writing, Will Ashworth did not hold a position in any of the aforementioned
securities.
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