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ETFs Deserving a Close Watch If Health Care Plans Fail

Sanghamitra Saha

The Wall Street already experienced the worst day of 2017 on March 21 ahead of the decision-making day of Trump’s Health Care plan, namely American Health Care Act (AHCA). The success of the passage of this plan will decide if President Donald Trump will be able to keep his tax cut, deregulation and higher spending promises (read: Trump, Biogen and Amgen Hammer Healthcare ETFs).

In any case, the fear of stretched valuations is rife after an astounding rally in the last five months on Trump’s repeated pledges for fiscal reflation. However, a retreat in bank and health care stocks led the key U.S. gauges to lose over 1% in a single day for the first time in five months. On March 22, though the S&P 500 and the Nasdaq recovered a bit, the Dow Jones Industrial Average stayed on the losing track.

Features of Health Care Plan

As per sources, we get an idea that rich people will be the key beneficiaries of AHCA in the form of tax cuts. The top 1% of households will benefit from an average tax cut of $7,300. There was a feature in Obamacare which would levy a tax on the net investment income of wealthy people.

The tax on the net investment income “is separate from the capital gains tax and was estimated to cost the top 1% of households an average of nearly $25,000 a year.” The two tax cuts will give the rich Americans an annual tax savings of $33,000 on average. That looks huge against an average of $180 tax savings for all households.

Chances of a Seamless Passage of the Bill

A source reported that just prior to the vote on the plan, “the group of right-wing lawmakers known as the House Freedom Caucus announced they had more than 25 members voting “no” — enough opposition to sink the bill’s prospects of passage.”

More moderate House Republicans also dropped hints of their disapproval to the bill on Wednesday. In short, the Republican health care bill and the repealing of Obamacare has been facing friction from not only Democrats, but also from some conservative GOP members.

Market Impact

The failure of health care reforms will thin down all hopes so far piled up in investors’ minds. Renewed worries over oil prices on surging U.S. crude output and overvalued stocks may accentuate market risks. GDP growth estimates for the first quarter have declined lately to about just 1%. And the Wall Street thus may see a pretty good correction (read: 5 Alternative ETFs to Beat Market Slump).

Below we highlight a few ETFs that could gain or lose if Health Care Plans fail.

ETFs in Focus

Volatility ETFs

iPath S&P 500 VIX ST Futures ETN VXX

Assuming that the market may turn rocky, we expect volatility levels will flare up. This will benefit VXX that looks to track the iPath SP 500 VIX Short-Term Futures ETN.

Inverse ETFs

If the market plummets, you could definitely profit out of the plunge by going short on the key U.S. indices. There are a number of inverse or leveraged inverse products in the market that could gain ahead if the broader market falters.

Short S&P500 ETF SH

This fund provides unleveraged inverse exposure to the daily performance of the S&P 500 index.

Short Dow30 ETF DOG

Dow Jones – one of the best beneficiaries of the Trump rally— will be hard hit if uncertainty continues to mound over Trump’s proposed policies. So, keep a look at DOG for gains if such a scenario crops up. It offers an inverse unleveraged exposure to the Dow Jones Industrial Average Index.

Ranger Equity Bear ETF HDGE

This ETF is active and does not track a benchmark. Its objective is capital appreciation through short sales of domestically traded equity securities.

Health Care ETFs

One of the biggest winners of Obamacare – hospital stocks – started taking a beating since the last few days in apprehension of a smooth passage of AHCA. A Bloomberg index showed that seven North American hospital chains declined about 8% over the past three days. So, if the plan fails to muster enough votes, hospital stocks would jump in joy.

With hospital stock HCA Holdings Inc. (HCA) occupying 4.6% of the iShares U.S. Healthcare Providers ETF IHF, one can expect to gain too.However,there are other stocks likeUnitedhealth Group Inc UNH, Aetna Inc AET and Humana Inc HUM that grab a sizable share of the fund. These general health care insurers are expected to gain on AHCA as concerns over their profitability cropped up in the Obamacare era (read: Obama Care: A Bane for Health Care ETFs?).

Medical devices ETFs like iShares U.S. Medical Devices ETF IHI will also likely fare better under Trump care as all taxes imposed under Obamacare will no longer be levied.

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Aetna Inc. (AET): Free Stock Analysis Report
 
Humana Inc. (HUM): Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
 
IPATH-SP5 VX ST (VXX): ETF Research Reports
 
ISHARS-US H C P (IHF): ETF Research Reports
 
ACTIVE-BEAR (HDGE): ETF Research Reports
 
PRO-SHRT S&P500 (SH): ETF Research Reports
 
PRO-SHRT DOW30 (DOG): ETF Research Reports
 
ISHARS-US MED D (IHI): ETF Research Reports
 
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