Deal-Making is Healthy for Healthcare Providers ETFs

A scant number of exchange traded funds are making 52-week or all-time highs today, but increased mergers and acquisitions scuttlebutt has the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) and the SPDR S&P Health Care Services ETF (NYSEArca: XHS) in that small group.

IHF, the larger of the two ETFs, is up 0.2%, bringing its one-month and year-to-date gains to 3.8% and 18.3%, respectively. The equal-weight XHS is also higher by 0.2%. That ETF, home to $186.4 million in assets under management, is up 3% over the past month and 15% this year. It appears those ETFs could soon lose some holdings, but that is not a bad thing.

Dow component UnitedHealth (NYSE : UNH) and Anthem (NYSE: ANTM), the two largest U.S. health insurance providers by revenue, are looking to acquire their smaller though still big rivals. [More M&A Coming for This Healthcare ETF]

UnitedHealth has made overtures for rival Aetna (NYSE: AET) while Aetna has been reportedly eying Humana (NYSE: HUM), according to the Wall Street Journal. Not to be left out, Anthem has been in talks with Cigna (NYSE: CI), though the latter has rebuffed the former’s overtures., the Journal reports.

UnitedHealth and Anthem are IHF’s largest and third-largest holdings, respectively, combining for 20.4% of the ETF’s weight. In order, Aetna, Cigna and Humana are IHF’s fourth-, fifth- and sixth-largest holdings, representing a combined 19.1% of the ETF’s weight. Although XHS allocates no more than 2.59% of its weight to any of its 55 holdings, the aforementioned stocks combine for 11.4% of that ETF’s weight.

These deals, if they transpire, are likely to be massive. For example, Aetna currently sports a market value north of $43 billion while Cigna is a $39 billion company. Humana’s market cap is $30.2 billion at this writing. Healthcare providers ETFs, in particular IHF, are not strangers to large-scale mergers and acquisitions.