Election Could Make or Break Health Care ETFs

September 18th at 6:00am 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 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. [ETFs and the Presidential Election]

“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 Obamacare must be repealed –- in its entirety.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 (NYSEArca: IBB)
  • SPDR S&P Biotech ETF (NYSEArca: XBI)
  • SPDR S&P Pharmaceuticals ETF (NYSEArca: XPH)
  • iShares Dow Jones US Pharmaceuticals Index Fund (NYSEArca: IHE)
  • PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP)

For more information on the health care sector, visit our health care category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.