Investing In Healthcare Exchange-Traded Funds

|
 |  Includes: BBH, VHT
by: InterTrader

With all the hullabaloo surrounding the Affordable Care Act, savvy American investors are increasingly looking toward potentially lucrative healthcare ETFs. The current quagmire that is the healthcare overhaul is causing widespread panic and discontentment among the American populace. Regardless of political affiliations, Americans are now starting to feel disgruntled with the rollout of the Affordable Care Act, also known as Obamacare. Much attention has been focused on the inability of the website to handle the large traffic volumes it has been experiencing.

But, more importantly, everyday folks are worried about losing their healthcare plans or having to pay extortionary amounts for remaining on them. Nobody is debating the necessity for overhauling the healthcare system in the U.S., but the implementation of the chosen path is proving to be anything but smooth. Investors have been eyeing the markets with a keen interest, looking for opportunities in and among the debris of the sorry rollout to date. Just recently, former President Bill Clinton -- in a mild rebuke -- reminded President Obama that he should hold firm to his promise that Americans would be able to keep their healthcare plans.

A Looming Healthcare Crisis

To date, millions of Americans have lost their healthcare plans, and employers are not looking to foot the bills of full-time employees given the new constructs of the healthcare regulations. It appears as if ideology and economy are at an impasse and big business is not bearing the brunt of this train wreck -- ordinary Americans are. Clearly, the law as it stands is riddled with problems. If an insufficient number of young people -- who are relatively healthy -- don't buy into the system, the entire system will collapse in on itself. It is against this backdrop that savvy investors are looking toward the healthcare sector to earn lucrative returns. It is clear that millions of baby boomers have long since headed into retirement. What this means is that the time is fast approaching when these people will require more expensive healthcare.

The fact of the matter is that aging populations are now a reality that Western society has to contend with. With people dropping out of the workforce in their early 60s and living well into their 90s, a problem is looming on the horizon. On the opposite end of the spectrum, developing economies have virtual population explosions with scores of young people, and fewer people making it into old age. Retirement ETFs are one such way that smart investors can pick and choose winners in the markets, without exposing themselves to high levels of risk.

Among the many available options are broad-level exposure funds that offer lower levels of overall risk. Of course, there are several leading funds on the market including industry heavyweights like Vanguard Health Care Index Fund (NYSEARCA:VHT), Guggenheim S&P 500 Equal Weight Health Care (NYSEARCA:RYH), or SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH). The trick is to be able to handpick ETFs that are future-oriented, with things like biotechnology worked into the company's strategic vision. The healthcare sector has plenty of room for expansion beyond the billions of dollars already invested in it.

Burgeoning Growth of Healthcare ETFs

Now that investors have the ability to buy healthcare ETFs with diversified exposure these types of investments are showing strong growth. In America today, people are living longer and incurring greater medical expenses than at any time in recent history. This is complicated by the massive expenditure on medical devices, treatment regimens, and FDA-approved drugs. Of course, within the U.S. system, Medicaid encourages active use of healthcare services. The Affordable Care Act will likely result in even greater usage of healthcare services, thereby boosting overall demand.

The success of the healthcare industry is nothing to scoff at. During the course of 2012, the Vanguard Healthcare ETF outperformed the S&P 500 by more than three percentage points. But this does not tell the full picture: Biotechnology and pharmaceuticals -- subsectors -- have performed even better than the healthcare industry as a whole.

The Biotech Panacea

In terms of overall financial figures, biotechnology (NYSEARCA:BBH) showed massive gains of more than 47% during 2102. There can be no doubt, however, that there is considerable risk involved when investments are made in biotechnology companies. Since this sector is very research-intensive and requires monumental amounts of capital investment, the risk of success or failure is often touch and go. Competition is fierce, and volatility is high.

The goal, therefore, is to keep your eyes on the prize and your ears to the ground. Sensible advice for investors in these fluctuating markets is to diversify with healthcare ETFs in domestic and international markets. And sub-sectors across different continents can certainly boost your portfolio's performance. Risk must always be measured against reward, with long-term yields viewed as the ideal goal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.