Health care stocks and exchange traded funds (ETFs) had a ho-hum 2007, but there is one sub-sector that has high expectations for 2008: managed care.

Analysts’ expectations are high, since the sub-sector posted a 28% average return for 2007,  placing it 24th out of 100 categories tracked by Morningstar. The average health care stock posted a 12.2% gain, ninth among 12 major sectors.

Don Dion for Seeking Alpha says that’s all been great news for the iShares Dow Jones Healthcare Providers (IHF), which wrapped up 2007 up 18.3%. Its top eight holdings are managed-care stocks: six insurers, two pharmacy benefit managers, firms employers and managed-care companies. These stocks account for 65% of IHF’s holdings.

This ETF is viewed as a play on aging population, a positive regulatory environment and ever-rising federal spending on health care. In addition, managed care companies, many of which rely on Medicare spending, have repeatedly posted strong profit growth. Could this be a prescription for success?


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.