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.

Investors still have to decide on which industries are best positioned to perform well in the recovery, remarks Matt Krantz for USA Today. Possibly the worst thing any investor could do is jump in after sectors that have already gained, continually chasing performance.

After betting on financials and tech companies, investors are now looking for actual economic growth in the second half of the year, especially in consumer discretionary companies that make big-ticket items such as automobiles and appliances. Krantz notes, however, that investors are applying prudent techniques when picking out future winning sectors:

History. Certain sectors and certain companies do better at certain points of an economic cycle. If the past repeats itself, solid performance could come out of consumer discretionary stocks, along with materials and industrial companies. These “cyclical” sectors could gain as demand for goods picks up. Later, energy stocks could gain as companies expand to cover all the demand.

• Consumer Direct Select Sector SPDR (NYSEArca: XLY): up 30% year-to date
• iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM): up 55% year-to-date
• SPDR Select Sector Fund- Basic Industries (NYSEArca: XLB): up 43% year-to-date
• Energy Select Sector Energy Fund (NYSEArca: XLE): up 17.7% year-to-date

Cycles. Growth in revenue is still down and may continue to be so in the third quarter, but some businesses could show early growth. The businesses that will perform will be the ones to stop cost cutting and start expanding. This is one of the reasons why financials may continue to benefit as demand for loans increases.

• SPDR Financial Select Sector (NYSEArca: XLF): up 23.3% year-to-date

Diamonds in the rough. Some small banks and brokers may stand out by enticing customers who have become estranged from large financial firms. Modernization of bridges and roads will lead to a boom in the infrastructure industry. Government investment into green tech will also likely help the alternative energy industry. As more companies use the internet to conduct business, business that build internet networking systems may also become in demand.

• iShares S&P Global Infrastructure (NYSEArca: IGF): up 13.8% year-to-date
• PowerShares Wilderhill Clean Energy Portfolio Fund (NYSEArca: PBW): up 28.9% year-to-date
• iShares Networking Fund (NYSEArca: IGN): up 61.7% year-to-date

Not so good. Sectors dependent on consumers may not see previous cash flows for awhile yet. Businesses such as retailers, restaurants and casinos may also continue to struggle.

Watch the trends. There’s no such thing as a “sure thing” in the markets, otherwise no one would ever lose anything. We can all guess which sectors will perform and which won’t, but reality could bear out differently. Watch the trend lines to spot the true opportunities, and have a stop loss in place, as well.

Max Chen contributed to this article.

The Federal Reserve announced that industrial activity rose 0.8% in August, beating the 0.6% forecast by economists.  The Fed also revised July’s numbers to a rise of 1%, twice as much as previously reported.  The news sent the PowerShares Dynamic Basic Materials ETF (NYSEArca: PYZ) up 0.8% in morning trading.

The Labor Department reported that consumer prices rose in August. In fact, the “core” consumer price index rose by 1.4% over the 12 months ending in August.  This could be good news in that this rise means the central bank faces little pressure to raise its benchmark interest rate, a step it takes to ward off high inflation, report Christopher S. Rugaber and Jeaninne Aversa of the Associated Press.

U.S. long-term securities are not as attractive to foreign investors as they once were.  Foreigners purchased $15.3 billion more assets than they sold in July, compared to $90.7 billion more assets than sold in June.  China, however, is still highly attracted to U.S. securities, as the emerging nation increased its holdings of U.S. Treasuries from $776.4 billion in June to $800.5 billion in July.  These holdings are a direct result of the huge trade deficits the United States runs with the emerging Asian power.

In the health care arena, the Chairman of the Senate Finance Committee unveiled a summary of his long-awaited health care plan. Sen. Max Baucus’ plan would cost $865 billion over 10 years and mandate insurance coverage for all Americans, report David M. Herszenhorn and Robert Pear for The New York Times.  One major change is that the measure drops the public health insurance option favored by President Barack Obama and instead calls for non-profit health-care cooperatives.  The plan aims to make it easier for small groups and individuals to have health care coverage.  The news sent the Healthcare Select SPDR (NYSEArca: XLV) up about 0.5% in morning trading.

Overall, all three major U.S. indexes were up in morning trading.  The Dow Jones Industrial Average added 0.8%, while both the S&P 500 and Nasdaq added 1.1% each.

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

Kevin Grewal contributed to this article.

SPDR ETFs first traded on the American Stock Exchange in 1993 after being issued by State Street Global Advisors. The so-called “spiders” are index funds that track the S&P 500 Index and shares of the traditional SPDR ETFs hold a stake in the 500 stocks represented by the S&P 500, says Christina Granville for Investopedia.

SPDRs have a fixed number of shares that are bought and sold on the open market. This is because SPDR ETF shares represent a portion of  interest in the unit investment trusts (UITs) that hold the stocks of each of the underlying indexes that they represent. Holders of the SPDR ETFs have some voting privileges.

Ultimately, the success of the SPDRs opened the door for more investment options, including industry sectors and market capitalizations within the S&P 500. These ETFs include the Financial Select Sector SPDR (XLF) and the Health Care Select Sector SPDR (XLV). There are nine in total.

Their success even brought about the creation of SPDRs that track the Dow Jones Industrial Average. The SPDR Dow Jones Large Cap (ELR) and other similar funds retained the “SPDR” moniker, even though they’re not related to the S&P 500.

There are now hundreds of versions of the SPDR ETFs worldwide, and Granville notes that they’re often viewed as the “thoroughbreds” of their strategy.

For more on ETF history, visit our ETF 101 category.

Health care reform has been centered around the passage of a “public health care option” which ultimately means that Americans would have the right to choose whether they want public health insurance.

Khronostock on Daily markets reports that having the public health insurance option means that Americans would have a choice of keeping the health insurance they currently have, buying health insurance from one of the many private health insurance companies, or choosing a public health insurance plan.

The so-called August offensive is launched by the Democrats against the insurance industry, as Republicans remain opposed to the proposed health care overhaul. The main message of the campaign is that by making over the health care system, consumers will be protected against unscrupulous health care practices, such as refusing patients with pre-existing conditions, reports Sheryl Gay Stolberg and David M. Herzenhorn for The New York Times.

President Barack Obama’s plan involves a  government-run health insurance plan that will compete with the private sector, but in the meantime, should not hurt those who are already insured.

Wherever health care goes, be sure to watch the trend lines for signs of any potential long-term uptrend (or vice versa).

• iShares Dow Jones U.S. Healthcare Sector (IYH): up 7.8% year-to-date

• Vanguard Health Care (VHT): up 7.8% year-to-date

• Health Care Select Sector (XLV): up 7% year-to-date

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

Federal Reserve Chairman Ben Bernanke addressed Congress and Wall Street and assured them that the U.S. central bank will be able to keep inflation down when the economic recovery is more firmly rooted.  He said that when it comes time to soak up the money from its stimulus plans, the Fed could raise the rates it pays banks on reserve balances held at the central bank, making it more attractive to keep money parked there or could drain money from the financial system by selling its securities from its portfolio with an agreement to buy them back at a later date or it can sell securities outright.  Regardless of which path is taken, an exit strategy is in the works.

A slew of earnings came forward today:

• Heavy equipment maker Caterpillar (CAT) reported a decline in second-quarter profits by 66% on a weakened global economy and commodity prices.  The Dow component reported earnings of $0.60/share smashing Wall Street’s expectations of $0.22/year.  CAT also increased its earnings expectations for the remainder of the year.
• The largest U.S. chemical maker DuPont (DD) topped analysts’ expectations by reporting earnings of $0.61/share, 15% higher than the $0.53/share expected by analysts.  The company has implemented major cost-cutting measures which are leading to profitability.
• Coca-Cola (KO) stated that its sales fell because of a stronger dollar, but was still able to post a 43% increase in second-quarter profits, thanks to rapid overseas growth.
• Drug maker Merck (MRK) posted a 12% drop in profits on lower sales of its cholesterol drugs and various vaccines.  However, the company was still able to beat Wall Street’s expectations of $0.77/share by reporting earnings excluding one-time charges of $0.83/share.
• Additionally, UnitedHealth Group (UHG) reported earnings of $0.73/share, beating analysts’  expectations of $0.70/share and boosted its annual outlook.  The news sent the Health Care Select Sector SPDR (XLV) up nearly 1% in morning trading; MRK is 5.2% and UHG is 2.7%.

It appears that problems for lender CIT Group (CIT) continue to plague the company.  Second-quarter earnings are expected to come in at a loss of $1.5 billion, in addition to possibly still being in the verge of filing for bankruptcy despite securing $3 billion in emergency funds.

Overall, the markets were mixed on today’s heavy earnings session.  The Dow Jones Industrial Average gained 0.7%, the S&P 500 gained 0.2% and the Nasdaq dropped 0.1% in morning trading.

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

Kevin Grewal contributed to this article.

A health care makeover under $1 trillion and ensuring that it is universal will be no easy feat for the federal government. Janet Adamy for The Wall Street Journal reports that the Congressional Budget Office said this week that one Senate proposal, when combined with certain expansions to the Medicaid program, would cost about $1.1 trillion over a decade and still leave 15 million to 20 million Americans uninsured in 2019.

The trick for the White House is to make sure that emphasizing that the plan won’t increase the deficit — meaning savings must be found for every dollar spent. The Obama administration is seeking aid from both pharmaceutical and hospital concessions.

Ceci Connelly and Michael D. Shear for The Washington Post report that no single development appeared likely to kill Obama’s signature domestic agenda item, but the constant  challenges has taken the creation of a government-sponsored health care program down to the “negotiable” level.

Nonetheless, health care is the one of the few sectors up in the last month:

• Health Care Select Sector SPDR (XLV): up 2% for one month

• Vanguard Health Care (VHT): up 1.4% for one month

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

Objective

XLV seeks to match the returns of the Health Care Select Sector index.

How It Works

XLV holds 54 companies diversified across the spectrum of the health care sector, including health care equipment and supplies, providers and services, biotechnology and pharmaceuticals. It has an expense ratio of 0.21%. The fund can be a good way to diversify across the entire range of the sector instead of banking on one particular industry, especially as health care reform winds its way through Washington and the ultimate impact remains in question.

The Latest News

• The health care sector has been getting an increasing amount of attention since President Barack Obama declared reform one of the top priorities for his administration.
• Rising health care costs decrease the competitiveness of U.S. insurance companies, strain state and federal budgets and eat away at consumer wealth. The U.S. spends around $2.5 trillion on health care annually and is still behind other developed nations on many public health measures.
• Back in March, health care companies considered Obama’s overhaul a potential profit-killer and investors shared the same assumption as they dumped shares.

• 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%.

• XLV is down 3.8% year-to-date and up 2.4% in the last two weeks.

For more ETF Spotlights, visit our ETF Spotlight page.

President Barack Obama’s plan comes with a 10-year price tag of an estimated $634 billion, and he wants to enact it without boosting the budget deficit, reports Brian Faler for Bloomberg. Industry groups are gathering and have pledged to slow projected spending growth by $2 trillion over the next decades, but some are skeptical that the savings will ever materialize.

General Electric (GE) has been invited to Washington to unveil plans. They will unveil GE’s new efforts to improve “sustainability of global healthcare systems” involving health technology, independent living, rural health and cost containment, says Paul Glader for The Wall Street Journal.

GE is aiming at improving access to quality health care, while lowering costs, and developing products and marketing them inline with sustainability. The company is trying to benefit from a business standpoint in an effort to gain from the White House, and Obama’s benefit priorities.

The new initiative is likely to involve a deeper push by GE into information technology for health care, such as electronic medical records. The IT will help hospitals and doctors monitor progress and medical records on a paperless level.

• Vanguard Health Care (VHT): down 3.5% year-to-date

• Health Care SPDR (XLV): down 4.7% year-to-date

In the last few years, health care stocks have performed relatively the same as their related ETF in the S&P, Health Care Select Sector SPDR (XLV), writes Ron DeLegge for ETF Guide.

Now, the sector is seeing increased activity with mergers and takeovers, and more buyout deals could be on the way. Health care stocks also have pretty enticing valuations with current P/E ratios of around or below 10 compared to the S&P 500’s 11.9 multiple. Watch the trend lines, though:  most of these funds are close to their short-term trend lines, and none have crossed their 200-days.

Interested in health care ETFs but don’t know of any? Well here are a couple for you to ponder over:

• iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH): down 8.6% year-to-date. The ETF is based on the Dow Jones Index and has 139 health care stocks. Stocks of companies are selected passively and weighted to their market capitalization or size, the medium size is just over $2 billion.

• Health Care Select Sector SPDR (XLV): down 10% year-to-date. It is made of health care stocks within the S&P 500. It is the largest health care ETF with around $2 billion in assets. Companies included deal in health care equipment and supplies, health care providers and services, biotechnology and pharmaceuticals. The health care sector, the second largest of the sectors,  is around 15% of the S&P 500’s overall sector weighting.

• Vanguard Healthcare ETF (VHT): down 9% year-to-date. VHT tries to mirror the MSCI US Investable Market Health Care Index. The ETF contains 297 holdings, each with a median market size of around $45 billion, and it is seen as the most diversified of the available health care ETFs.

• Rydex S&P Equal Weight Health Care ETF (RYH): down 5.4% year-to-date. RYH follows S&P 500 health care stocks, but it weights each stock equally. This usually causes a bias toward mid- and small-company stocks.

• PowerShares Dynamic Healthcare Sector Portfolio (PTH): down 11.1% year-to-date. PTH may be more useful for a portfolio strategy. It tries to outperform the performance of major health care equity benchmarks. Stocks are picked out by using a quantitative formula that looks for fundamental growth and valuation.

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

Max Chen contributed to this article.