Spin-offs often make for interesting investments. There are not that common, but tend to perform well, especially in their first couple of years as a stand-alone stock. This has been written about in a few areas, and specifically by investor and author Joel Greenblatt, as this type of stock is one of his favorite investments.

Let's look at what spin-offs are and why they outperform.

The accompanying table includes 38 companies in the ETF Innovators Health Benefit Providers Index, which was down sharply last week and has lost 14% of its market value to a level of $192,305 since I last wrote about the group five weeks ago.

The uncertain future for health insurers and benefit providers that I wrote about previously came to a head this week with plans by President Obama for healthcare reform aimed at cutting health costs by favoring generic drug makers and smaller Medicare Advantage payments to private insurers, along with smaller increases in Medicare Advantage reimbursement for 2010 than was expected.

Q4 2008 Earnings Call

February 6, 2009 10:00 am ET

The table below (click to enlarge) contains 36 companies included in the ETF Innovators Health Benefit Providers Index. Many of the companies included in this index face an uncertain future with the prospect for healthcare reform threatening the profit margin of managed care companies; although the prospect for universal health insurance promises increased volumes as more Americans gain coverage.

The index contains retail pharmacies such as Rite Aid (RAD), pharmacy benefit managers such as MedcoHealth Solutions (MHS), managed care companies such as UnitedHealth (UNH), supplemental health insurers such as Aflac (AFL), hospital pharmacy operators such as PharMerica (PMC), workers compensation insurers such as Amerisafe (AMSF), and specialty health service providers such as Healthways (HWAY).

Healthcare investing trends in 2009 and beyond will be affected by the new administration's plans for healthcare reform, which are summarized at the Change.gov website. A key feature of the plan is making health insurance coverage possible for all Americans using the existing network of insurers and providers. The plan relies on tax credits for small businesses and eligible individuals to help pay the cost of health insurance premiums. Also, large employers which do not offer health insurance benefits would be required to contribute a percentage of their payroll toward the cost of healthcare for their employees.

Insurance companies would be required to cover pre-existing conditions and the insurance market will be reformed to eliminate anti-competitive practices, including the creation of a National Health Insurance Exchange with a variety of affordable health insurance options. Investments in health information technology (Health IT) will be made to encourage e-prescribing and electronic recordkeeping to reduce the incidence of medical errors and encourage the portability of health information.

The 28 companies included in the ETF Innovators (ETFI) Health Benefit Providers Index (click to enlarge) with market caps over $250M have lost over 40% of market value in the past year on an equally weighted basis.

Q3 2008 Earnings Call Transcript

October 31, 2008 11:00 am ET

Q2 2008 Earnings Call Transcript

August 8, 2008 11:00 am ET

Q1 2008 Earnings Call

May 9, 2008 10 a.m.