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.

The U.S. Senate Finance Committee approved its version of legislation to overhaul the nation’s $2.5 trillion health care system.

Matt Phillips for The Wall Street Journal reports that following the official vote moving the bill out of the committee, health shares moved even lower. Unfortunately, the S&P Health Care Sector index is the worst-performing segment of the S&P 500, knocking the financial sector off from the top position. (Read why health care ETFs still have appeal).

Health insurers took the biggest decline after the vote, which pharmaceuticals close behind. The Standard & Poor’s pharmaceutical index is down 1.5%, outpacing the declines in the health care index and the S&P 500.

Leslie Gevirtz for Reuters says there are both winners and losers in the current bill.

Winners:

• Drugmakers/Pharmaceuticals. The pharmaceutical sector managed to keep an $80 billion rebate agreement while also successfully heading off a fight that would have required some of its largest players to give back another $106 billion in additional rebates over 10 years. Pharmaceuticals can be played with the PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP), which is up 9.7% year-to-date.

• Hospitals. Hospitals kept intact a $155 billion, 10-year deal to accept lower payments from Medicare and Medicaid. Some hospitals can be found in the iShares Dow Jones U.S. Healthcare Providers (NYSEArca: IHF), which is up 18.9% year-to-date.

Losers:

• Health Insurers: While the industry successfully fought amendments for a government-run program, it still faces more than $6 billion in yearly fees. Vanguard Health Care (NYSEArca: VHT) is up 12.3% year-t0-date.

• Device makers: Device makers are facing a $4 billion yearly fee, although analysts feel that this feel could be reduced. iShares Dow Jones Medical Devices (NYSEArca: IHI) is up 29.9% year-to-date.

For more stories about health care, visit our health care category.

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.

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

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.

In a New York Times article, Elisabeth Rosenthal examines how over the past two years, cervical cancer has gone from an obscure disease mostly in poor nations to a great concern in many western countries.

Two vaccines have been approved and released over the past two years. Over this period, tens of millions of girls throughout the United States and Europe have been vaccinated against cervical cancer. In many countries, the vaccines were recommended for universal use among females between the ages of 11 and 26. The vaccines include Gardasil, from Merck, and Cervarix, a GlaxoSmithKline product.

As this market grows at an alarming rate, the vaccines have appealed to not only potential recipients and humanitarians, but politicians as well. The remarkably quick transition of the vaccines in the United States and Europe shows the success of what manufacturers call education and critics call marketing.

As investment in these vaccines increases, award-winning advertising has been utilized to promote these innovations. The impact has been so large, 41 states have passed or have begun considering legislation on cervical cancer. Virginia has made the shots mandatory for girls before entering school, which takes effect in 2009.

As even the critics of the marketing admit to the benefits of the vaccines, many questions remain unanswered about both treatments. Questions pertaining to the length of immunity and potential side effects have nagged the vaccines.

However, 16 million doses have already been distributed domestically by Merck. This left both the FDA and CDC saying that “by chance alone some serious adverse effects and deaths” will occur because of the large population these 16 million doses were administered to.

Even though some questions remain pertaining to the long-term effects and immunity of the vaccines, the market for these treatments is vast and potentially very lucrative. Some ETFs that could weigh in on this action include:

• HealthShares Cancer (HHK), is up 1.5% year-to-date with top holdings in Vertex Pharmaceuticals, APP Pharmaceuticals, Fresenius, and Onyx Pharmaceuticals.
• Pharmaceutical HOLDRs (PPH), is down 10.6% year-to-date with top holdings in Abbot Laboratories, Johnson & Johnson, Merck, and Pfizer.
• PowerShares Dynamic Pharmaceuticals (PJP), is down .8% year-to-date with top holdings in Genetech, Wyeth, Merck, and Johnson & Johnson.
• SPDR S&P Pharmaceuticals (XPH), is down .5% year-to-date with top holdings in Barr Pharmaceuticals, Forest Laboratories, King Pharmaceuticals, and Merck.
• iShares Dow Jones US Pharmaceuticals (IHE), is down 3.4% year-to-date with top holdings in Pfizer, Merck, Johnson & Johnson, and Abbot Laboratories.