This article was originally published on ETFTrends.com.
Count the iShares US Medical Devices ETF (IHI) and the iShares US Healthcare ETF (IYH) among the healthcare exchange traded funds that could be affected by the results of the upcoming 2018 midterm elections.
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 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.
Some expectations point to Democrats winning back the House of Representatives and the Republicans maintaining a narrow hold on the Senate – Republicans currently dominate both chambers. According to public opinion polls, it would require a sea change to alter current projections, CNBC reports.
A divided Congress would also mean real immediate regulatory changes on price changes in the pharmaceutical industry.
Solid Second Half
“In the second half of 2018 since June 30, the industry has rallied 4.6%, joining other perceived safer haven equity areas such as Consumer Staples 6.4% and Utilities 6.3%,” said BlackRock. “Valuation concerns have been addressed as forward P/Es have been reduced to ten-year lows.”
Industry observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
IHI, the medical devices ETF, could rally if post-election plans emerge in Congress to permanently scrap implemented as part of Obamacare that focuses squarely on medical device makers.
“Additionally, investors have been digging even deeper to gain exposure to longer term trends such as Medical Devices, which at 16.8% year-to-date are handily beating both the sector and the broad S&P 500,” according to BlackRock.
For more information on the healthcare sector, visit our healthcare category.
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