ETF Trends
ETF Trends

As the calendar switched over into the new year, a slew of new health care rules went into effect. Health care exchange traded funds (ETFs) kicked off the year trading higher, but whether that sticks is another story.

Janet Adamy for The Wall Street Journal reports that new taxes on drug makers, lower prescription-drug costs for seniors and restrictions on tax-free medical spending accounts are among a slate of health-law provisions that kicked in alongside the new year.

The new rules may be felt differently across the health care industry, but one in particular could feel pain sooner rather than later. Pharmaceutical makers will get hit with a $2.5 billion tax, distributed across all drug makers and based on their sales volume for the year. That could cause some pain for ETFs like iShares Dow Jones U.S. Pharmaceutical (NYSEArca: IHE), which was up 11.1% in 2010. [2011 Could Be Health Care ETFs Year.]

This is all while the law faces a battle in the courts. A federal judge in Virginia ruled that a key provision of President Obama’s health care reform that requires most Americans to purchase health insurance is unconstitutional. Until this bill reaches the Supreme Court and goes any further, the health care sector could be volatile for some time, reports Benjamin Shepard for Investing Daily.

Health care ETFs such as iShares Dow Jones U.S. Healthcare Provider (NYSEArca: IHF), PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP) and First Trust Health Care AlphaDEX (NYSEArca: FXH) are all up in the last year, some by more than others. If you want to own this sector, be aware of the risk for shocks as the legal issues work themselves out.

Tisha Guerrero 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.