Health care stocks and exchange traded funds (ETFs) had a ho-hum 2007, but there is one sub-sector that has high expectations for 2008: managed care.

Analysts’ expectations are high, since the sub-sector posted a 28% average return for 2007,  placing it 24th out of 100 categories tracked by Morningstar. The average health care stock posted a 12.2% gain, ninth among 12 major sectors.

Don Dion for Seeking Alpha says that’s all been great news for the iShares Dow Jones Healthcare Providers (IHF), which wrapped up 2007 up 18.3%. Its top eight holdings are managed-care stocks: six insurers, two pharmacy benefit managers, firms employers and managed-care companies. These stocks account for 65% of IHF’s holdings.

This ETF is viewed as a play on aging population, a positive regulatory environment and ever-rising federal spending on health care. In addition, managed care companies, many of which rely on Medicare spending, have repeatedly posted strong profit growth. Could this be a prescription for success?

Tags: Health Care, Sector ETFs