ETFs to Capitalize Off Obamacare Fueled Growth
As the Affordable Care Act adds millions into the healthcare system, the increased demand for health products and services are supporting the momentum in healthcare-related exchange traded funds.
The healthcare sector has been among the best performing area in U.S. markets, with Health Care Select Sector SPDR (XLV) up 12.0% and iShares U.S. Healthcare ETF (IYH) 13.0% higher year-to-date.
Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, recommends investors should look into healthcare stocks as “plays on Obamacare,” reports Matt Clinch for CNBC.
Specifically, Golub pointed to innovative drug companies and the biotechnology subsector.
Investors can also dive deeper into the healthcare sector and focus on individual segments. For instance, the iShares Nasdaq Biotechnology ETF (IBB) is the largest biotech ETF by assets.
ETF investors can also target pharmaceutical names through broad options like the Market Vectors Pharmaceutical ETF (PPH) , SPDR Pharmaceuticals ETF (XPH) and iShares U.S. Pharmaceuticals ETF (IHE) .
Additionally, there are a number of specialized options available. For instance, the ALPS Medical Breakthroughs ETF (SBIO) focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III U.S. FDA clinical trials. The BioShares Biotechnology Clinical Trials Fund (NasdaqGM:BBC) tracks potential up-and-coming biotechnology companies that are in the clinical trials stage. [Healthcare ETFs: Specialized Drugs in Greater Demand]
The healthcare sector fundamentals look favorable. According to actuaries at the Centers for Medicare and Medicaid Services, American spending on all healthcare increased 5.5% in 2014 year-over-year and is expected to grow 5.3% this year, reports Louise Radnofsky for the Wall Street Journal.
Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled.
Consequently, the greater demand for services could help bolster healthcare provider-related ETFs, like the iShares U.S. Healthcare Providers ETF (IHF) and the equal-weight SPDR S&P Health Care Services ETF (XHS) . [Falling Uninsured Rate Helps Support Healthcare Sector, ETF Outlook]
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
