|Back to main|
Health Care Under Scrutiny
Health care followed the roller coaster which most equities rode in 2010, and towards the end investors were smiling. But a decisive victory mid-term election by Republicans begs the question of whether health care revenue will suffer in the looming fight to cut government spending. Although Republicans denounce subsidies, and health care is the industry under most scrutiny, health care is not likely to feel a big pinch any time soon.
Government dominated health care before Obama, so repeal or restriction of the new health care program will not magically create a free market. The sheer complexity of this mega-industry which accounts for about 15% of the economy means that reform cannot take place all at once. Should reform come, major players may find less government pork to exploit, but they will also have less overhead from dealing with bureaucracy.
It should be recalled that Republicans championed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 in which Washington subsidized drugs to the elderly but was barred from negotiating wholesale prices with pharmaceutical companies. Republicans have consistently refused to touch Medicare which is the main out-of-control government program. With unlimited corporate spending into today's races, it is a sure bet that medical firms retain their clout on Capitol Hill.
Meanwhile, the population is aging and growing more obese, so chronic conditions will continue to stimulate demand. And the weak dollar is helping major pharmaceuticals, since exports are cheaper for international customers.
Three plain low-cost ETFs track broad health care indexes and correlate highly. These include SPDR Health Care Select Sector ( XLV ) at .25% annual fees, iShares Dow Jones US Healthcare (NYSEArca:IYH) at .48% and Vanguard Health Care ( VHT ) at .25% fees:
Valuations in the range of 12-14 remain attractive even after price appreciation because of steady profit growth.
Health care contains diverse sub-sectors served by ETFs. Many investors focus on one or more of these. Probably the most prominent is biotechnology. Despite being a relatively small sub-industry, it has explosive growth potential. Biotech ETFs include:
- First Trust AMEX Biotech ( FBT ) 0.60%
- Invesco PowerShares Dynamic Biotechnology & Genome ( PBE ) 0.60%
- Invesco PowerShares Global Biotech Portfolio ETF (NasdaqGM:PBTQ) 0.75%
- iShares Nasdaq Biotechnology ( IBB ) 0.48%
- SPDR Biotech (NYSEArca:XBI) 0.35%
- Invesco PowerShares Dynamic Biotechnology & Genome ( PBE ), 0.6% fees
Various other sub-sector ETFs include:
- iShares Dow Jones US Healthcare Provider (NYSEArca:IHF), 0.48% annual fees
- Invesco PowerShares Dynamic Healthcare Sector Portfolio (PTH) 0.6% fees
- Invesco PowerShares Dynamic Pharmaceuticals ETF (PJP) 0.6% fees
- Invesco PowerShares FTSE RAFI Health Care Sector Portfolio (NasdaqGM:PRFH) 0.6%
- International and global ETFs include:
- Invesco PowerShares Global Biotech Portfolio (NasdaqGM:PBTQ) 0.75%
- iShares S&P Global Healthcare Sector (NYSEArca:IXJ) 0.48%
And finally several leveraged ETFs allow traders to place aggressive bets on the industry.
- ProShares Ultra Health Care (RXL) 0.95%
- ProShares UltraShort Health Care (RXD) 0.95%
- Rydex 2x S&P Select Sector Health Care (AMEX:RHM) 0.7%
- Rydex ExpressShares S&P Equal Weight Health Care (RYH) 0.5%
- Rydex Inverse 2x S&P Select Sector Health Care (AMEX:RHO) 0.7%