ETF Spotlight: Healthcare and the Affordable Care Act

December 4th at 1:25pm by Tom Lydon

There are no certain sectors that grant investors immunity from market volatility, yet healthcare sector exchange traded funds such as the Health Care Select Sector SPDR (NYSEArca: XLV) can defend a portfolio from unwanted maladies. Yet even if the Patient Protection and Affordable Care Act, or PPACA, becomes active, the impact upon healthcare companies could become muted.

“Even before the election, it was evident investors felt that the PPACA is here to stay. The stock prices of health-care companies largely have kept up with–or outpaced–the rest of the market and have not reacted meaningfully to either the Supreme Court’s decision or the results of the election. Had investors felt, by contrast, that the entire law would be overturned, we would have expected to see negative investor sentiment and compressed earnings multiples across the sector,” Robert Goldsborough wrote for Morningstar. [Healthcare ETFs: A Post-Election Buying Opportunity]

The next hitch for healthcare is the Federal budget and so-called fiscal cliff anecdote. Automatic budget cuts are scheduled, but amounts and allocations have yet to be determined. Goldsborough mentioned that markets may already be factoring in these cuts to healthcare shares’ prices. Further impact upon these companies is expected to be modest at most. [A Healthcare ETF For Obama's Second Term and Affordable Care Act]

As the number of uninsured U.S. citizens declines, about 17%, the full impact of PPACA will not be realized until a few years have passed. [Obamacare is Unhealthy for Medical Devices ETF]

Obamacare is seeking to increase access and affordability to healthcare while holding insurance companies more accountable. Should Medicare be strengthened and expanded, this in essence, should help support focused shares and ETFs. Likewise, the consumer base should also open up for pharmaceutical companies.

Healthcare ETFs:

  • iShares Dow Jones US Healthcare Sector Index (NYSEArca: IYH) up 3.9% over past three months
  • iShares S&P Global Healthcare Sector Index Fund(NYSEArca: IXJ) up 4.6% over past three months
  • Vanguard Health Care Index Fund (NYSEArca: VHT) up 3.9% over past three months
  • iShares Dow Jones U.S. Healthcare Providers Index Fund (NYSEArca: IHF) up 0.4% over past 3 months

Health Care Select Sector SPDR up 3.9% over past three months

Tisha Guerrero 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.