Health care-focused exchange traded funds (ETFs) have done so-so this year. If analysts’ calls are correct, 2011 could be the sector’s breakout year.
- Michael Gregory, manager of the Highland Long/Short Healthcare fund, believes that the health care sector will perform in 2011 as a result of the compromise in Washington, cheap valuations and consolidations among drug companies, reports Gregg Greenberg for TheStreet.
- Health care companies are relatively cheap at the moment and corporations are sitting on piles of cash. That’s a recipe for some real buying activity. Watch pharma in particular: the sector’s players may acquire companies with products in Phase III or recently approved.
- Medical companies have good balance sheets, which help growth, and pharmaceutical companies are heavy on research and development that will help sustain growth, according to Investing in Pharma Companies. Additionally, most pharma products are non-discretionary, and revenues will be relatively steady during economic cycles.
- Investment in health care is expected to go up next year, thanks to confidence stemming from health-care reform and an aging population in need of more medical services.
For plays on this front, consider ETFs like iShares Dow Jones U.S. Healthcare Provider (NYSEArca: IHF), which gives broad exposure to the health care industry, or First Trust Health Care AlphaDEX (NYSEArca: FXH), which has been a top performer this year.
For more focused exposure, consider PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP), which is up 26.5% in the last six months. You can find and research all of the health care ETFs in the ETF Analyzer.
Managed care could be the loser as the government mandates insurers to spend more on the health costs incurred by employees. ETFs like iShares Dow Jones U.S. Insurance (NYSEArca: IAK), SPDR KBW Insurance (NYSEArca: KIE) and PowerShares Dynamic Insurance (NYSEArca: PIC) may see their performance suffer; all three have a more than 20% weighting in health insurance providers. [Why Health Care ETFs May Be In the Clear.]
One issue looming for drug makers is that pharma will have to face increased excise tax to pay for reform and pressure from European austerity measures – 30% of pharmaceutical sales are in Europe. Watch pharmaceutical-focused ETFs for any signs that this is weighing on them. [Pharmaceutical ETFs: Drug Companies Roar Back.]
For information on pharmaceuticals, visit our pharmaceutical category.
Max Chen 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.