Healthcare ETFs React Differently To Supreme Court's Ruling

by: Gary Gordon

Virtually all stock ETFs had been taking it on the chin prior to the Supreme Court’s decision on the “Affordable Health Care Act.” Yet some sub-segments fared better than others once the law had been upheld.

For example, iShares Healthcare Providers Fund (NYSEARCA:IHF) might have been a big-time loser with its exposure to big insurance corporations like Cigna (NYSE:CIG) and Humana (NYSE:HUM). However, companies that offer diagnostic testing like Laboratory Corp. of America Holdings (NYSE:LH) and Quest Diagnostics (NYSE:DGX) rocketed, helping the exchange-traded vehicle hold its ground. The iShares Healthcare Providers Fund (IHF) had nearly a percentage point spread over the S&P 500 a few hours after the ruling.

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IHF Against SPX

The exact opposite effect occurred with respect to medical equipment makers. “Hip-n-knee” reconstructive standout Stryker (NYSE:SYK) as well as surgical procedure/device maker Intuitive Surgical (NASDAQ:ISRG) dragged on iShares Medical Devices (NYSEARCA:IHI). This exchange-traded fund significantly underperformed the broader market.

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IHI Versus Market

In spite of all of the hullabaloo, we can make a simple observation about the Supreme Court’s impact. At least for a single day, most healthcare stocks were a little less desirable than usual. Whereas the non-economically sensitive sector tends to fall less on down days than the S&P 500, SPDR Select Sector Healthcare (NYSEARCA:XLV) was every bit as prone on this occasion. That would suggest that pharma, biotech, devices and insurers did not celebrate the ruling, while hospitals and diagnostic companies did.

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XLV and the S&P 500

Of course, investors may be misled on the longer-term implications. Me? I still believe PowerShares Dynamic Pharma (NYSEARCA:PJP) is a “low-risk/reasonable-reward” portfolio holding, providing you have an exit strategy.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.