Why Health Care ETFs May Be in the Clear

by: Tom Lydon

After the Democrats lost some seats in the mid-term elections, you might be wondering whether health care revenue and ETFs will be affected by the shift. Some don’t believe there’s anything to worry about for a while.

First, with most corporations backing major Congressional players, it is almost certain that the medical industry will maintain some say in Washington, according to ETF Zone.

In addition to that, an aging population, higher obesity rates and chronic medical conditions will keep demand for medicine high.

And don’t forget about the power of overseas markets. Exports to foreign markets have become cheaper as the dollar depreciates against a basket of currencies.

With the passage of the health-care bill, FAF Advisors analyst Tim Nelson believes that “increased regulatory requirements mean less innovation, less differentiation and more pricing pressure for the foreseeable future,” report Eben Esterhuizen and Alicia Sellitti for The Motley Fool. The legislation should bring in more customers but that won’t likely occur until years into the future.

For now, health care ETFs may see a bit more tepid growth and there are some things to look out for. Consumers are reducing expenses by buying fewer products and services that medical practitioners consider essential, and a good chunk of pharmaceutical patents are set to expire in the coming years and companies will have to compete with cheaper generics.

Health care clearly needs some of the kinks worked out, and it seems like the clarity enjoyed earlier this year is once again a murky issue. While many of these ETFs are trading higher, watch the trend lines for signs of any slowdown and be prepared to act – or ride the wave higher.

There are a broad number of ways to play health care with ETFs. But first, you have to decide what you want: are you in the market for sector-specific exposure or do you want an all-encompassing health care fund that runs the gamut from providers and pharmaceutical makers to biotech and equipment.

Broad health care indexes:

  • SPDR Health Care Select Sector (AMEX: XLV)
  • iShares Dow Jones US Healthcare (NYSEArca: IYH)
  • Vanguard Health Care (AMEX: VHT)

Biotech ETFs include:

  • First Trust AMEX Biotech (AMEX: FBT)
  • Invesco PowerShares Dynamic Biotechnology & Genome (AMEX: PBE)
  • iShares Nasdaq Biotechnology (AMEX: IBB)
  • SPDR Biotech (NYSEArca: XBI)
  • Invesco PowerShares Dynamic Biotechnology & Genome (AMEX: PBE)

Other sub-sector ETFs include:

  • iShares Dow Jones US Healthcare Provider (NYSEArca: IHF)
  • Invesco PowerShares Dynamic Healthcare Sector Portfolio (AMEX: PTH)
  • Invesco PowerShares Dynamic Pharmaceuticals ETF (AMEX: PJP)
  • Invesco PowerShares FTSE RAFI Health Care Sector Portfolio (NasdaqGM: PRFH)

As always, if you want more oomph in your health care play, or simply want to bet on a short-term direction, then consider a short or leveraged ETF.

  • ProShares Ultra Health Care (AMEX: RXL)
  • ProShares UltraShort Health Care (AMEX: RXD)
  • Rydex 2x S&P Select Sector Health Care (AMEX: RHM)
  • Rydex ExpressShares S&P Equal Weight Health Care (AMEX: RYH)
  • Rydex Inverse 2x S&P Select Sector Health Care (AMEX: RHO)

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

Max Chen contributed to this article.

Disclosure: None