Post-Election Day Tests Linger for Healthcare ETFs

The Health Care Select Sector SPDR (NYSEArca: XLV) is up more than 2% over the past week, but the largest healthcare exchange traded fund and rival funds will likely be tested by the results of today’s midterm elections.

Currently, most political prognosticators are forecasting the Democrats gaining control of the House while the Republicans are expected to maintain control of the Senate.

“Many investors see health-care investments as a defensive play because demand for health products and services tends to remain stable throughout various phases of the business cycle,” reports Tanzeel Akhtar for the Wall Street Journal. “he sector includes companies focused on biotechnology, pharmaceuticals, research services, home health care, hospitals, and medical equipment and supplies.”

What To Watch For

The pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose. However, investors must consider the potential risks to the sector associated with Republicans’ efforts to undo the Affordable Care Act (ACA), also known as Obamacare.

“Drug prices have become a hot topic for President Trump, who has proposed a plan to drive down the price Medicare pays for some drugs by basing them on their cost in other countries,” according to the Journal.

“Drug pricing should remain a key issue post Midterm elections. Healthcare has fared well in the past year, benefiting from a defensive rotation by investors and strong corporate earnings growth,” said BlackRock in a recent note.