Healthcare ETFs: A Post-Election Buying Opportunity?
November 20th, 2012 at 3:14pm by Tom Lydon
Healthcare has been in focus due to the Presidential election and the future of Obamacare. Exchange traded funds focused on the healthcare sector were anticipated to rally if President Obama was re-elected, however, the bounce has failed to materialize so far.
“Jeff Loo, who heads the health care equity research team for S&P Capital IQ, says that with President Obama winning a second term and the Democrats maintaining control of the Senate, the path is clear for Healthcare reform.
He believes the battle moves from Republicans attempting to repeal the law to some Republicans resisting the implementation of certain parts of the law, mainly the creation of state healthcare exchanges and the expansion of Medicaid. Loo thinks these issues have resulted in some short term downward pressure on some healthcare sub-industries, particularly the managed care sub-industry, S&P Capital wrote in a recent report. [Presidential Election: ETFs for a Obama or Romney Victory]
So can the recent market pullback actually be a buying opportunity for healthcare stocks and ETFs? S&P Capital rates several focused ETFs “Overweight” such as the Health Care Select Sector SPDR (NYSEArca: XLV).
XLV currently has $5.5 billion in assets under management and is the largest and most liquid fund in this sector. The fund has lost 5.5% since the election, however, there are several top-quality stocks included in the index that can not disappoint. Companies such as Johnson and Johnson (NYSE: JNJ), Pfizer (NYSE: PFE) and Merck (NYSE: MRK) have decent weightings in XLV. [Obamacare Unhealthy for Medical Devices ETF]
Vanguard Health Care Index Fund (NYSEArca: VHT), also rated “Overweight,” is down over 6% since early November, but like XLV, the fund contains high quality blue-chip pharmaceutical stocks. [Sector ETFs for Obama and the Fiscal Cliff]
“Sam Stovall, S&P Capital IQ’s Chief Equity Strategist, noted that the health care group is trading at a 17% discount to its median relative P/E ratio since 1995, and that six of its 10 sub-industries are projected to post above-market EPS growth in 2013. From a technical perspective, he added that the sector remains in a bullish channel that began in 2011, and has continued to trace out higher highs and higher lows since 2009,” S&P Capital wrote.
Other ways to play the sector with ETFs:
- iShares Dow Jones US Healthcare Sector Index (NYSEArca: IYH)
- iShares S&P Global Healthcare Sector Index Fund(NYSEArca: IXJ)
- iShares Dow Jones U.S. Healthcare Providers Index Fund (NYSEArca: IHF)
Health Care Select Sector SPDR
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.