Buoyed by rumors that the health insurance industry is poised for consolidation on a grand scale, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) has been steadily rising and raking in new assets.
As of June 23, IHF added $247 million in new assets this year, the ETF’s biggest first-half inflows since it came to market in 2006, reports Joseph Ciolli for Bloomberg. Up 19.4% year-to-date, is now home to $987.4 million in assets under management.
For weeks, investors and the financial media have been expecting a wave of consolidation that could see marriages among some of IHF’s largest holdings. Earlier this week, Cigna (NYSE: CI) rejected a $47 billion takeover offer from Anthem (NYSE: ANTM). Anthem and Cigna are IHF’s fourth- and fifth-largest holdings, respectively, combining for over 13% of the ETF’s weight. [More M&A Coming for This Healthcare ETF]
Dow component UnitedHealth (NYSE: UNH) has made overtures for rival Aetna (NYSE: AET) while Aetna has been reportedly eying Humana (NYSE: HUM), according to the Wall Street Journal. UnitedHealth, Aetna and Humana combine for about 23% of IHF’s weight.
“Fueling the potential consolidation is the Obama administration’s 2010 health law, which put tougher rules on the industry, demanding more covered services, better care and a ceiling on profits. Companies are racing to capture the more than 20 million customers who will buy coverage under the law,” according to Bloomberg.
Inflows to IHF are accelerating, including $138.1 million in the current quarter. In March 2014, the ETF had just $400 million in assets under management. Investors are also taking note of IHF’s equal-weight rival, the SPDR S&P Health Care Services ETF (NYSEArca: XHS).
XHS now has nearly $191 million in assets, $25 million of which have arrived this quarter. The ETF has added $54.1 million in new assets this year. Cigna, Aetna, Anthem, UnitedHealth and Humana combine for 10% of XHS’s weight. The ETF is up 15.8% this year.
IHF and XHS are not strangers to healthcare mergers and acquisitions. Earlier this year, UnitedHealth agreed to acquire Catamaran for $12.8 billion in cash.
In 2009, Express Scripts (NasdaqGM: ESRX) spent $4.7 billion to acquire WellPoint and followed up that deal with the $29 billion acquisition of Medco in 2012. [Healthcare ETFs Remain Sturdy]
Last month, shares of Quest Diagnostics (NYSE: DGX), the provider of healthcare diagnostic testing services, after it was rumored that that company could be a takeover target as well though chatter to that effect has since ebbed. Quest Diagnostics is 2.6% of IHF and 2% of XHS.
iShares U.S. Healthcare Providers ETF