With so much attention devoted to emerging markets elections this year, most recently Brazil’s, investors cannot and should not forget that U.S. mid-term elections are just a week away.
As is usually the case, there is speculation regarding which sectors could be affected by the 2014 U.S. election cycle. Municipal bond investors should be monitoring several important gubernatorial races, but investors with equity exposure to several marquee sectors, notably health care sectors, will be keeping close watch on U.S. congressional races. Translation: Speculation is running rampant that some well-known sector and industry ETFs could benefit if the Republicans seize a Senate majority. [Muni ETFs in Focus Ahead of Mid-Term Votes]
Hopes that the GOP will claim a Senate majority could be the impetus behind the recent rally in shares of the iShares U.S. Medical Devices ETF (NYSEArca: IHI) and the SPDR S&P Health Care Equipment ETF (NYSEArca: XHE). Coming into Tuesday, IHI sported a 4% gain over the past month while XHE, the equal-weight option among medical device ETFs, was up nearly 5% over the same period. To this point Tuesday, 25 ETFs have made new all-time highs with the $751.1 million IHI being one of those funds.
More upside for IHI and XHE could be on the way…if financial markets like the results of next week’s House and Senate races.
“The Republicans are probably a plus for the defense industry, and some parts of the health-care sector. It is believed that medical device manufacturers could benefit from a GOP victory if the party can repeal the excise tax imposed on the industry to help pay for the Affordable Care Act,” said Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management in an interview with Johanna Bennett of Barron’s.
While the Obamacare medical device tax was initially seen as potentially hazardous to the health of IHI, XHE and the ETFs’ holdings, it cannot be ignored that the two ETFs have posted an average two-year gain of over 50%. [Medical Device ETF Surges]
Still, the other factor that cannot be ignored is emotional sentiment. Of course it is just a hypothetical scenario right now, but if the Republicans seize control of both houses of Congress, even the appearance that they will repeal the Affordable Care Act, likely a trying endeavor, could boost IHI and XHE.
“No matter which party prevails in the Senate race, Obamacare’s medical device tax is another ripe target for dispute and an area of greater possibility for change. Currently, medical device manufacturers or importers must pay a 2.3% tax on the sale price of taxable devices, such as heart defibrillators,2 and they have placed increasing pressure on Republicans to alleviate this tax burden,” said State Street Vice President and Head of Research Dave Mazza in a new research note.
XHE is the smaller of the two medical device ETFs, but more than 20% of its $35.6 million in assets under management have come into the fund this year. The ETF resides just 1% below its 52-week high.
SPDR S&P Health Care Equipment ETF
