ETFs are a good way for investors to capitalize on policy initiatives of the Obama administration while reducing the day-to-day volatility compared to other investment options, such as stocks, remarks Daniel Harrison for IndexUniverse. (Play Obama’s new energy plan).

Health Care opportunities. Jim Oberweis, chief executive of Oberweis Asset Management, believes that “there is a possible positive [outcome] for pharmaceutical companies” since sales of prescription drugs will increase as health care coverage widens. Furthermore, Oberweis argues that health care providers may benefit from more patient visits and biotechs are in a more positive position than previously thought. (More on the health care sector).

Broad-based and niche market ETFs that could benefit from the growth in the number of patients receiving coverage include:

• Health Care Select Sector SPDR (NYSEArca: XLV): up 14.3% year-to-date
• iShares Dow Jones U.S. Healthcare (NYSEArca: IYH): up 15.1% year-to-date
• iShares Dow Jones U.S. Medical Devices (NYSEArca: IHI): up 32.4% year-to-date; IHI is well-diversified, with 58% of assets under management in its top 10 holdings, and a maximum single-stock weighting of 10%. Companies included should benefit from the increase in the number of hospital patient visits.
• PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP): up 10.3% year-to-date; PJP is a well-diversified ETF on large, mostly dividend-paying pharmaceutical companies that have lots of cash on hand and may see an increase in sales of core prescription drugs.
• SPDR S&P Pharmaceuticals (NYSEArca: XPH): up 19.2% year-to-date; XPH is more broadly diversified.
• iShares Dow Jones US Pharmaceuticals (NYSEArca: IHE): up 22.2% year-to-date; IHE focuses more on the oversold traditional pharma brands like PJP.
• SPDR S&P Biotech (NYSEArca: XBI): down 4.3% year-to-date; XBI is well-diversified, with 45% of its funds invested in its top 10 holdings. The fund is also mostly invested in nontraditional pharma companies.
• iShares Nasdaq Biotechnology (NasdaqGM: IBB): up 11.2% year-to-date; IBB has a higher weighting in its top holdings and it focuses exclusively on Nasdaq-listed securities; some large biotech companies may be excluded.

Clean energy. It is no big secret that clean energy is a big policy initiative of the Obama administration. The more notable technologies being pushed into the forefront of the sector are nuclear and solar energy. Solar tech investing is still considered risky because of the industry’s mini boom/bust cycles, but ETFs help minimize volatility. (More on alternative energy).

• Market Vectors Solar Energy ETF (NYSEArca: KWT): down 6.5% year-to-date
• Claymore/MAC Global Solar Energy (NYSEArca: TAN): up 0.3% year-to-date
• Market Vectors Nuclear Energy ETF (NYSEArca: NLR): up 19.7% year-to-date

Max Chen contributed to this article.

Among the economic reports that left Wall Street with mixed feelings include

• In September, wholesale prices made a surprise drop thanks to lower energy costs. The Producer Price Index declined 0.6%, but economists were expecting a flat reading. In the year ending September, the index fell 4.8%, reports the Associated Press.
• Applications for hosing permits fell by the largest amount in five months in September. The applications help gauge future housing activity. Some suspect that the drop came amid concerns that Congress wouldn’t continue its tax credit for first-time homebuyers, reports Martin Crutsinger for the Associated Press. SPDR S&P Homebuilders (NYSEArca: XHB) is down about 1.2% this morning.

Earnings reports this morning were mostly better than expectations despite some losses:

• Caterpillar (NYSE: CAT) announced that its profit declined 53% in the third quarter. But the equipment maker is already looking ahead, saying that it expects its prospects to improve next year as the economy strengthens, reports the Associated Press. There are already signs of growing demand in Asia, and Caterpillar generates 70% of its sales overseas. PowerShares Global Emerging Markets Infrastructure (NYSEArca: PXR) is down about 1.5% this morning.

• Coca-Cola (NYSE: KO) saw its third-quarter profits move high, but sales took a hit from falling consumer purchases of carbonated beverages. The amount of soda shipped grew 2%, but fell 4% in North America.
• Drugmaker Pfizer (NYSE: PFE) reported a profit, thanks to cost-cutting that made up for declining sales. The company intends to keep cutting costs because it has the biggest drug industry deal of the year: a $68 billion acquisition of Wyeth. iShares Dow Jones U.S. Pharmaceuticals (NYSEArca: IHE) is down about 1% this morning.

Oil prices briefly topped $80 a barrel this morning, but retreated as soon as the dollar began to strengthen against the euro. It was the first time in a year that oil topped $80, reports the Associated Press.

Johnson & Johnson (NYSE: JNJ), which makes Band-Aids and the Acuvue brand of contact lenses, reported better-than-expected earnings but just missed the revenue forecast, reports Linda A. Johnson for the Associated Press. Pharmaceutical sales dropped 14.1% because of increased generic competition. iShares Dow Jones U.S. Pharmaceuticals (NYSEArca: IHE) is down about 0.6% this morning. JNJ is 8%.

Gold hit an intraday price record, surging as high as $1,069.70 an ounce. Many analysts expect the price of gold to continue to rise into next year, reports Ben Rooney for CNNMoney. The weakening U.S. dollar has lent support to gold’s run-up. Have a strategy when investing in gold, and be sure to set a stop loss that you can execute when the time comes. Read how here. SPDR Gold Shares (NYSEArca: GLD) is up nearly 0.5% this morning.

The euro has jumped to its highest level against the U.S. dollar since September 2008 as investors seek out higher yields, reports Nicholas Hastings for The Wall Street Journal. The eurozone’s currency is on its way toward $1.50. CurrencyShares Euro Trust (NYSEArca: FXE) is up about 0.25% in morning trading. Read about how to incorporate currencies into your portfolio here.

Cisco (Nasdaq: CSCO), the world’s largest manufacturer of networking equipment, is buying Starent Networks Corp. for $2.9 billion. This is Cisco’s second multibillion-dollar buy in less than two weeks, reports Rochelle Garner for Bloomberg. iShares S&P North America Tech-Multimedia Networking (NYSEArca: IGN) is up about 0.2% this morning.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

For full disclosure, Tom Lydon’s clients own shares of GLD.

After largely ignoring the disease, virtually every large pharmaceutical company seems to have discovered cancer now that more about the disease is known. A substantial portion of the smaller biotechnology companies are focused on it, as well. Combined, the two industries are pumping billions of dollars into the development of drugs to fight off the disease, reports Andrew Pollack for The New York Times.

Two industry trends are pushing the move:

• Recent scientific discoveries have suggested new targets for cancer drug researchers to attack
• Drug companies are experiencing declining profits from staple drugs such as Lipitor; high prices that cancer drugs can command are proving to be alluring
• Cancer patients are often desperate for drugs while insurers could face outrage if they denied payments, so drug makers can charge hefty sums for medicines – even those that don’t work very well

Gardener Harris for The New York Times reports that a settlement has been reached regarding the pharmaceutical giant Pfizer (PFE) over the company’s illegal promotion of its now-withdrawn painkiller, Bextra. The $2.3 billion fine is the largest-ever levied for Medicare and Medicaid fraud, and the agreement also includes some promotional practices involving other Pfizer drugs — Zyvox, Geodon and Lyrica.

• PowerShares Dynamic Pharmaceuticals (PJP): up 3.9% year-to-date



• iShares Dow Jones U.S. Pharmaceuticals (IHE): up 10.2% year-to-date



• SPDR S&P Pharmaceuticals (XPH): up 8.7% year-to-date

For more stories about pharmaceuticals, visit our pharmaceutical category.

This weekend, Obama closed the “doughnut hole” in Medicare Part D coverage, which will cut the costs of drugs for seniors. The Pharmaceutical Research and Manufacturers of America agreed to reduce its draw of revenues by $80 billion over 10 years and cut the cost of medicine in the program by up to 50%, reports Stephanie Condon for CBS News. Perhaps it could spur more drug spending if many people were holding off on buying certain prescription drugs because of cost issues.

Meanwhile, the industry is changing its approach to drug development, which could lead to more profitability if it proves successful. The Food and Drug Administration is pushing to take a new angle and focus on genetic triggers that cause disease. A decade ago, the aim was for drug companies to develop pills that could be marketed to millions of patients, explains Jeanne Whalen for The Wall Street Journal.

But if drug companies can find and fix the genetic switches that make people sick, companies such as Novartis believes it will find truly effective drugs that patients need — and that insurers are willing to pay for. This will act as a segue, identifying rare diseases and using them as an entrance to identify and treat more common ones.

The major advances in genetics and biology research have made this approach to pharma care possible, thanks to technology that gives scientists the ability to pick apart the causes of many illnesses.

• PowerShares Dynamic Pharmaceuticals (PJP): down 5.9% year-to-date

• iShares Dow Jones US Pharmaceuticals (IHE): down 0.8% year-to-date

• SPDR S&P Pharmaceuticals (XPH): down 3.5% year-to-date

For more stories on health care, visit our pharmaceutical category.

What is a beaten-down global drug industry that has been hit by flagging product development and high fixed costs doing to restructure and regain strength and  what effect will this have on exchange traded funds (ETFs)?

Expirations Threat. One idea that has been thrown around is a potential merger between pharmaceutical giants Pfizer (PFE) and Wyeth (WYE).  Both companies are facing expirations of patents of their most lucrative drugs, intense competition by generic drug makers and increased regulatory standards by the FDA, states Matthew Karnitschnig and Jonathan D. Rockoff of the wall Street Journal.

Cost Savings. This merger makes sense because it will enable the giants to save billions in research and development, back office and sales and manufacturing costs.  On the other hand, it still doesn’t solve the industry’s problem of developing new drugs.

Complementary Products. Pfizer is not new to the concept of growing via acquisitions and Wyeth offers products and businesses that complement Pfizer’s lineup, especially Wyeth’s biotech exposure through Prevanar.  Exposure to the biotech industry will allow the drug makers to develop, produce and bring new drugs to the market.

More Power. In the absence of mergers and acquisitions, pharmaceutical companies have been cutting costs by slashing sales jobs, but this hasn’t been enough.  Hopefully, by stepping up to the plate and combining operations, the industry will be able to cut costs in such a way to make it the stock-market star that was in the 1990s and early 2000s.

Pharmaceutical HOLDRs (PPH): down 0.3% over the last month; Pfizer is 16.4%

iShares DJ U.S. Pharmaceuticals (IHE): up 0.8% over the last month; Pfizer is 7.7% and Wyeth is 5.7%

In 2009, Damien Conover for Morningstar says that he expects pharma to perform well for a few reasons:

• New drugs could gain traction this year
• Major patent expirations in 2011 have been factored in, for the most part
• There are some blockbuster approvals potentially coming down the pipeline
• More cost-cutting could continue to lift earnings

Gary Gordon of ETF Expert says that the pharmaceutical sector was able to dodge much of the volatility seen throughout the rest of the stock market, and managed to lose only 6%. In comparison, consumer staples took a 16% hit and financials were down by 50%.

Pharmaceuticals were able to remain stoic through the volatile 3 months and beyond due to the fact that these giants are not only time-tested, they are cash-rich. While pharma appears to be a safe and relatively stable sector there are market trends to watch for before jumping in. Watch the 50 day-moving-average first and get back into the market in increments. By doing so there is less risk and more opportunity to sleep at night.

• iShares Dow Jones U.S. Pharmaceuticals (IHE): down 1.4% over three months

• PowerShares Dynamic Pharmaceuticals (PJP): down 1% over three months

America has long enjoyed a love affair with the pharmaceuticals industry, thanks to the free market. Drug companies could price their wares more freely than they could in other countries, reports the Economist. But now, the industry’s future might be seen in emerging markets after having resisted for years.

The change of heart came from huge growth in the developing world’s drug markets. One agency forecasts that drug sales in emerging markets will hit $300 billion by 2017, equal to the current sales of the top five European markets and the United States combined.

The industry is also concerned about President-elect Barack Obama, who might allow cheap drugs to be imported from Canada or force Medicare to negotiate big discounts with drug firms. The latter could cut the industry’s American revenues anywhere from 3%-10%.

iShares Dow Jones U.S. Pharmaceuticals (IHE) is down 22.4% year-to-date.

For the first time in a decade, consumers are trying to get by on fewer drugs as they try to make tough choices between food, gas and medication. Often, medication loses out, reports Stephanie Saul for the New York Times. Through August, the number of drugs dispensed has been lower than the number dispensed in the first eight months of 2007.

Not only does this hurt the pharmaceutical industry, but what are now controllable conditions could wind up becoming major, expensive medical problems if people forgo their medications. It’s not an ideal situation when the cost of health care in this country is already sky high.

When people are sticking with their drugs, increasingly, they appear to be going generic. Over the past year, the ETFI Global Generic Drug Index has outpaced the Healthcare Select Sector SPDR (XLV), the PowerShares Dynamic Pharmaceuticals (PJP) and the iShares Dow Jones U.S. Pharmaceuticals (IHE).

The five top-rated generic drug companies are actually outside the United States, so a global generic drug ETF will provide the necessary exposure, reports Mike Havrilla for Seeking Alpha.

Trends that support the generic drug industry include:

• $70 billion-plus in brand-name drug sales with the threat of generic competition through 2012
• A general push to increase generic substitution rates to 65% of all prescriptions dispensed to more than 70%, saving money for the consumer and the government
• Next year has potential legislation for generic versions of high-cost biological agents

XLV is down 22.3% year-to-date.

With the coming election in November, everyone’s wondering what will become of healthcare when either John McCain or Barack Obama takes office.

Conventional wisdom tells us that if Obama takes office, Big Pharma will take a hit in profit margins. But overall, the healthcare sector can be risky to dabble in during these uncertain political times, ponders Gary Gordon for ETF Expert. He rightly points out that investing is never one-dimensional, and you can’t solely blame politics for what happens in pharmaceuticals.

As of now, pharmaceuticals have been coming out ahead, and meds are on an upward trend. Investors may have renewed faith in Democratic leadership, as Obama has been pushing for more affordable health care, rather than universal health coverage. Are investors convinced that Obama and McCain are unlikely to interfere with bottom line drug makers and distributors?

While we don’t know where the markets are going or who’s going to win the election in a few months, what we do know is that the trend in healthcare is up right now, and these three funds are above their trend lines.

• SPDR Pharmaceuticals (XPH), up 0.9% year-to-date; up 6.6% in the last three months
• iShares Dow Jones Pharma Fund (IHE), down 2% year-to-date; up 5.3% in the last three months
• iShares Dow Jones U.S. Medical Devices (IHI), up 3.1% year-to-date; up 7.9% in the last three months