Three days removed from the latest U.S. elections and it is
fair to say the market did not like the result. It is also fair
(and accurate) to say U.S. equities have performed well since
President Obama took office in 2009.
Some market historians would be inclined to argue that price
action in stocks is not a direct result of whomever resides in
the White House. That may be true. Maybe it is not, but there is
no getting around the fact that some sectors can be positively
and negatively affected by electoral politics. There is also no
denying that stocks and
have a tendency to overreact following elections.
However, that does not change the fact that nearly 500 ETFs
and ETNs, or more than a third of third of the entire U.S.-listed
exchange products universe, entered Friday below the critical
200-day moving average. Fund managers and technicians often view
securities that reside below the 200-day line as far removed from
a bull market and vulnerable to further declines.
Two of those ETFs are the iShares Dow Jones US Medical Devices
Index Fund (NYSE:
) and its more equal-weight rival, the SPDR S&P Health Care
Equipment ETF (NYSE:
). The funds are rallying today as the broader market aims to cut
some of its Wednesday/Thursday losses.
Well, sort of rallying. IHI, which has $274.3 million in
assets under management, is up 0.9 percent. Sounds good until one
discovers that with less than fours to go in the session, IHI's
volume is barely over 1,800 shares. The ETF's average daily
volume for the past three months is over 40,000. XHE is up by
roughly the same amount of volume of just 350 shares. That ETF's
average turnover for the past 90 days is 1,950 shares.
The reason why investors should not be lured in by Friday's
bounce in IHI and XHE is simple: The underlying holdings of these
could be in for some tough times now that President Obama has
been re-elected. As Benzinga reported
one of the dirty secrets of Obamacare is a tax on medical device
A study by the non-partisan Battelle Technology Partnership
Practice highlights the notion this is not any old tax. It is one
that is expected to cost tens of thousands of jobs and billions
of dollars in lost U.S. GDP growth at a time when the U.S.
economy can afford neither.
And as Benzinga
reported earlier this week
, the road investors face with ETFs such as IHI and XHE is made
even more difficult for a couple of reasons. For starters, most
investors surmised that health care stocks would benefit from an
Obama re-election. That might ultimately be the case for ETFs
such as the Health Care Select Sector SPDR (NYSE:
) and the iShares Dow Jones U.S. Healthcare Providers Index Fund
). That will not be the case for IHI and XHE.
Second, and perhaps by virtue of assumption that an Obama win
was supposed to be good for the health care sector at large,
mainstream coverage of the medical device tax and the problems it
can create for investors has been scant at best.
That is odd when considering the average market cap of the
stocks in the Dow Jones U.S. Medical Devices Index, the index
tracked by IHI, was almost $14.5 billion at the end of September,
according to iShares data
), IHI's top holding with a weight of almost 11 percent, has a
market value north of $42 billion. Intuitive Surgical (NASDAQ:
), one of the great growth stocks of the past decade, has a
market cap of just over $21 billion. In other words, IHI and XHE
are not home to small, unknown companies.
Medtronic has said the tax
could hurt its future investments
. Stryker (NYSE:
) and Zimmer Holdings (NYSE:
) have already announced layoffs related to the tax. The two are
IHI's fifth- and sixth-largest holdings, combing for 11 percent
of the ETF's weight.
In September 2011, Advanced Medical Technology Association
forecast the loss of 43,000 jobs related to the Obamacare tax
on medical device makers
. Even if the number works out to just half that, 21,500 lost
jobs is 21,500 too many.
It is unlikely IHI and XHE's constituents will benefit because
analysts will realize any increase in profitability, saying that
scenario even arrives, will have come by way of cost cuts, not
top-line growth. In other words, Friday's bullishness in these
two ETFs is a sucker's rally.
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(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.