After Republicans unveiled their Obamacare replacement, healthcare and biotechnology-related sectors were none too pleased. Nevertheless, exchange traded fund investors can still hedge their bets if they remain bullish on the space.
The healthcare sector has been strengthening in recent weeks, with various healthcare-related ETFs like the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC), Health Care Select Sector SPDR (NYSEArca: XLV) and Vanguard Health Care ETF (NYSEArca: VHT) up about 5.7% over the past month, compared to the broader S&P 500’s 3.8% gain.
The biotech segment has also rallied, with the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, 5.8% higher and the SPDR S&P Biotech ETF (NYSEArca: XBI), the second-largest biotechnology exchange traded fund, up 7.4%.
Market observers have grown more bullish on the biotech sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could fuel increased acquisitions and renewed growth in the sector.
However, the biotech and healthcare industries lost a step Tuesday after the introduction of a bill to replace Obamacare and a morning tweet from President Trump that targeted drug price.
Many investors previously thought that risks in the biotech segment would and the focus on drug pricing was limited to Hillary Clinton’s bid to the White House, but the rising price of pharmaceuticals and specialty drugs saw renewed attention after Trump stated that “pricing for American people will come way down,” with many traders worried about the potential negative effects on big pharma and biotech companies’ bottom line.
Investors who are wary of the potential changes and the effects it will have on the healthcare sector can take steps to hedge against further risks through inverse ETF options. For example, the ProShares UltraShort Health Care (NYSEArca: RXD) follows the -2x or -200% daily performance of the broader healthcare sector and the Direxion Daily Healthcare Bear 3x Shares (NYSEArca: SICK) takes the -3x or -300% daily performance of healthcare stocks.
Additionally, the Direxion Daily Pharmaceutical & Medical Bear 2X Shares (NYSE: PILS) may act as a hedge on medical and pharmaceutical stocks .
The Direxion Daily S&P Biotech Bear 1X Shares (NYSEArca: LABS) takes the simple inverse exposure to the S&P Biotechnology Select Industry Index while more aggressive traders can look to the Direxion Daily S&P Biotech Bear Shares (NYSEArca: LABD), which takes the -3x or -300% daily performance of the biotech sector, the ProShares UltraPro Short NASDAQ Biotechnology (NasdaqGM: ZBIO), which also tracks the -3x or -300% daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultrashort Nasdaq Biotechnology (NasdaqGM: BIS), which tracks the -2x or -200% daily performance of the biotech space.