There is no denying 2013 will go down as a banner year for exchange traded funds with ties to the health care sector.

Whether it has been broader plays on the sector such as the Health Care Select Sector SPDR Fund (NYSEArca: XLV) or more focused sub-industry plays like the Market Vectors Biotech ETF (NYSEArca: BBH) and the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF), most health care ETFs have thwarted the returns offered by broader market benchmarks. [Controversy Weighs on Obamacare ETF]

With a 2013 gain of 31.4%, the SPDR S&P Health Care Services ETF (NYSEArca: XHS) is on the list of this year’s high-flying health care ETFs. Now that the Affordable Care Act, also known as Obamacare, is rolling out, XHS could see an even more favorable fundamental picture next year as more Americans obtain health coverage.

“The math is healthy for hospitals: currently, hospitals ‘collect four cents on the dollar’ on their costs from uninsured patients who go to an emergency room for care but don’t have the ability to pay. Under the new law, once those folks are insured, the hospitals will ‘collect closer to 100 cents on the dollar,’ said Larry Robbins of Glenview Capital Management in an interview with USA Today.

That speaks to the notion of XHS being arguably the most credible Obamacare ETF most investors have not heard of. Nearly a third of the ETF’s weight is allocated to health care facilities operators, but despite that leverage to potential Obamacare profits, XHS has just $61.7 million in assets under management. That is, however, up significantly on a percentage basis from mid-October when we first highlighted the ETF and it had $55.6 million in AUM. [Hidden Gem is Another Obamacare ETF Winner]

Hospitals are the big winners in the Affordable Care Act because more people — up to 27 million – could end up buying insurance and going for procedures. Unlike in times past, the hospitals won’t have to do a lot of those procedures for free,” reports Eric Balchunas for Bloomberg.

And that should be good news for any ETF with an over 32% weight to hospitals and health care facilities operators.

XHS has stumbled a bit since hitting its all-time around $91.50 in late November, though it should be pointed out that as XHS has gained 65% over the past two years, its pullbacks have usually been shallow.

SPDR S&P Health Care Services ETF

ETF Trends editorial team contributed to this post.


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.

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