Politics Weigh On Health Care ETFs

April 25, 2019

End Of Private Insurance?

If the Sanders bill were to pass, the effect on the health care industry would be profound. Medicare “is the low-cost payer to hospitals,” wrote Raj Denhoy and Anthony Petrone, medical device analysts at Jefferies. “If it becomes a bigger portion of the overall payor mix, hospitals will be under a lot of pressure to lower costs.”

If “Medicare-for All” becomes the law of the land, the hospital industry could lose $800 billion over a decade; drug prices might be reduced by 30%; and the private insurance industry would be outlawed overnight, according to analysis by Raymond James’ Meekins and Yanchunis.

It goes without saying that Medicare for all would be devastating for many health care stocks, and by extension, health care ETFs.

Less Than 1% Chance

The prospect of big changes to the health care industry might be scary for investors. But before you sell all your health care funds, understand that nothing is a done deal.

The election is many months away, and there is no telling which presidential candidate will grab the Democratic nomination, let alone who will win the general election.

That’s why Raymond James analysts believe there is less than 1% chance that Medicare for all actually becomes the law of the land in the next five years.

If that’s the case, health care ETFs could end up being a bargain once the political dust settles.

Long-Term Value

Short-term movements aside, most analysts tend to agree that, barring sweeping changes to health care law in the U.S., the sector is a good long-term value after this year’s underperformance.

For investors interested in potentially capturing that value, the aforementioned XLV is the obvious choice. The $17.4 billion ETF is the largest, most liquid health care fund on the market.

However, for investors looking to take bolder bets on the segment, XLV may not be the best option. The actively managed $417 million ARK Genomic Revolution ETF (ARKG) has trounced XLV so far this year, delivering a gain of 35.7% thanks to big bets on gene-related companies like Illumina, Invitae and Intellia Therapeutics.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.) 

Stocks of insurance companies—poised to be the biggest losers if Medicare for all becomes law—aren’t found in ARKG.

Similarly, biotech funds like the ALPS Medical Breakthroughs ETF (SBIO), the Virtus LifeSci Biotech Clinical Trials ETF (BCC) and the SPDR S&P Biotech ETF (XBI) have done well, with double-digit returns.

For a full list of the available health care ETFs and their year-to-date returns, see the table below:

 

Health Care ETF YTD Returns

Ticker Fund YTD Return (%)
LABU Direxion Daily S&P Biotech Bull 3X Shares 45.75
ARKG  ARK Genomic Revolution ETF 35.70
KURE  KraneShares MSCI All China Health Care Index ETF 31.71
CHIH  Global X MSCI China Health Care ETF 29.36
CHNA  Loncar China BioPharma ETF 25.44
SBIO  ALPS Medical Breakthroughs ETF 19.69
BBP  Virtus LifeSci Biotech Products ETF 18.51
UBIO ProShares UltraPro Nasdaq Biotechnology 18.40
BBC  Virtus LifeSci Biotech Clinical Trials ETF 18.36
XBI  SPDR S&P Biotech ETF 17.80
BTEC  Principal Healthcare Innovators Index ETF 16.52
BIB  ProShares Ultra NASDAQ Biotechnology 14.56
KMED  KraneShares Emerging Markets Healthcare Index ETF 12.26
FBT  First Trust NYSE Arca Biotechnology Index Fund 9.88
PBE Invesco Dynamic Biotechnology & Genome ETF 9.60
IBB  iShares NASDAQ Biotechnology ETF 8.46
BBH  VanEck Vectors Biotech ETF 8.33
IHI  iShares U.S. Medical Devices ETF 7.65
XPH  SPDR S&P Pharmaceuticals ETF 6.51
XHE SPDR S&P Health Care Equipment ETF 6.21
CNCR  Loncar Cancer Immunotherapy ETF 5.09
RYH  Invesco S&P 500 Equal Weight Health Care ETF 4.95
FTXH First Trust Nasdaq Pharmaceuticals ETF 4.55
PPH  VanEck Vectors Pharmaceutical ETF 3.91
IEIH  iShares Evolved U.S. Innovative Healthcare ETF 3.86
PTH  Invesco DWA Healthcare Momentum ETF 3.84
IHE  iShares U.S. Pharmaceuticals ETF 3.57
FXH First Trust Health Care AlphaDEX Fund 3.11
PSCH  Invesco S&P SmallCap Health Care ETF 1.95
JHMH  John Hancock Multifactor Healthcare ETF 1.59
IXJ  iShares Global Healthcare ETF 1.47
FHLC Fidelity MSCI Health Care Index ETF 1.35
VHT  Vanguard Health Care ETF 1.31
IEHS iShares Evolved U.S. Healthcare Staples ETF 0.74
IYH  iShares U.S. Healthcare ETF 0.48
RXL  ProShares Ultra Health Care 0.37
XLV  Health Care Select Sector SPDR Fund -0.26
SLIM  The Obesity ETF -0.60
PJP Invesco Dynamic Pharmaceuticals ETF -1.82
RXD  ProShares UltraShort Health Care -1.90
XHS  SPDR S&P Health Care Services ETF -3.08
CURE  Direxion Daily Healthcare Bull 3x Shares -4.58
IHF  iShares U.S. Healthcare Providers ETF -6.18
PILL  Direxion Daily Pharmaceutical & Medical Bull 3X Shares -8.51
BIS  ProShares UltraShort Nasdaq Biotechnology -17.65
ZBIO ProShares UltraPro Short Nasdaq Biotechnology -27.54
LABD  Direxion Daily S&P Biotech Bear 3X Shares -48.06

Data measures total returns for the year-to-date period through April 22.

 

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2

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