2 Factors Working For Health Care Services ETFs

Health care services stocks have outperformed the broad market since 2014.

ETFs focusing on health care services iShares U.S. Healthcare Providers (IHF) and SPDR S&P Health Care Services (XHS) have risen over 37% from the start of 2014 through September 18, 2015. The S&P 500 is up 9% during the same period.

Health care services investments have benefited from the Affordable Care Act (ACA) as well as heightened merger & acquisition activity.

The population without health insurance has declined since healthcare providers phased in the ACA’s major provisions in 2014. According to Gallup, the uninsured rate among U. S. adults dropped to 11.4% in the second quarter of 2015 from 18.0% in the third quarter of 2013.

As a result, health insurers like Anthem (ANTM) and UnitedHealth Group (UNH) have prospered from premium growth through addition of new members. Hospitals like HCA Holdings (HCA) have benefited from a decline in expenses in caring for the uninsured while pharmacy benefit managers like Express Scripts (ESRX) have profited from higher sales for prescription drugs.

Healthcare providers have been notably active on the M&A front to stay competitive. They are seeking deals to lower costs by achieving scale economies and greater bargaining power. Healthcare companies that derive significant business from government programs like Medicare and Medicaid have become coveted takeover targets as others seek to enter or expand such business lines.

Here is a list of M&A activity that is reshaping the health care services industry:

Representative Deal Activity in Health Care Services in 2015

What’s Ahead for Fidelity Select Medical Delivery and Health Care Services ETFs

In the near-term, investor attention is likely to center on enrollment trends and merger-related developments.

The third year of enrollment via health care exchanges opens on November 1.

On the M&A front, there is measurable risk of regulatory hurdles derailing the proposed Anthem-Cigna (CI) and Aetna (AET)-Humana (HUM) mergers. For one, doctors, hospitals, and consumer groups oppose these transactions.