Election Could Make Or Break Health Care ETFs

by: Tom Lydon

As November approaches, health care exchange traded fund investors will be waiting to see if President Obama wins and goes ahead with the health care reform, or if Mitt Romney comes out on top and tries to repeal the Affordable Care Act.

After the Supreme Court upheld President Obama's health care reform, over 30 million Americans will be insured.

Needless to say, the boost in the number of potential customers will be a boon for the health care sector over the long-term. However, the short-term effects could be pressured by higher costs as the sector implements the changes.

"Morningstar's equity analysts believe that health-care reform will weigh on the health care industry's earnings per share by as much as 5% a year during the first few years of reform, followed by earnings gains of about 2% a year later in the decade," according to Morningstar analyst Robert Goldsborough. "This will occur, our equity analysts feel, because by 2014, volumes created by increases in the number of patients insured will begin mitigating cost pressures."

On the other hand, if Romney gets his win, he will actively repeal the law and reset the sector. However, the changes to implement the health care reform are already a sunk cost.

"Well of course I'm going to repeal Obamacare," Romney said, the Huffington Post reports. "I've said that on the campaign trail, I think, every single day. Obamacare must be repealed -- in its entirety. It's bad policy, it's bad law, and frankly, a $2 trillion entitlement we don't want and we certainly can't afford."

Health care sector ETFs include:

  • Health Care Select Sector SPDR Fund (NYSEARCA:XLV)
  • Vanguard Health Care Index Fund (NYSEARCA:VHT)
  • iShares Dow Jones US Healthcare Sector Index Fund (NYSEARCA:IYH)
  • iShares Dow Jones US Medical Devices Index Fund (NYSEARCA:IHI)

Additionally, investors can take a look at pharmaceutical and biotechnology sectors that will benefit from the aging population and growing patient base.

"In our view, the biotech industry is much less susceptible to government intervention than are other health care subsectors," Goldsborough added.

Biotech and pharma ETFs include:

  • iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB)
  • SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH)
  • iShares Dow Jones US Pharmaceuticals Index Fund (NYSEARCA:IHE)
  • PowerShares Dynamic Pharmaceuticals Portfolio (NYSEARCA:PJP)

Max Chen contributed to this article.

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.

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