10/17/2013 5:15 PM ET|
The ultimate Obamacare ETF
The $55 million SPDR S&P Health Care Services exchange-traded fund holds insurers, hospitals, clinics, rehab centers and nursing homes.
It just may be the ultimate play on Obamacare.
The $55 million SPDR S&P Health Care Services exchange-traded fund (XHS) holds insurers, hospitals, clinics, rehab centers and nursing homes -- all of which are about to get more paying customers from an injection of billions of dollars a year in a variety of new taxes. Its far larger rivals, including the popular $7.5 billion Health Care Select Sector SPDR ETF (XLV), have little or no exposure to hospitals.
While the narrowly focused, equal-weighted XHS is in a good position to profit from Obamacare, it's hardly undervalued. Since its launch two years ago and all through the legislative saga, XHS has been a top performer among the 22 health-care ETFs. Over that time, the fund has had a 77 percent return, 12 percent more than the broad health-care sector. XHS has seen assets quadruple since the start of the year; assets in all health-care ETFs are up 63 percent.
For those betting there's more room to run, there are a few reasons to consider XHS.
Hospitals are the big winners in the Affordable Care Act because more people -- up to 27 million – could end up buying insurance and going for procedures. Unlike in times past, the hospitals won't have to do a lot of those procedures for free. Hospitals aren't compensated for between 25 and 30 percent of the care they provide, according to Bloomberg Industries.
That prospect of higher compensation is one reason why HCA Holdings (HCA), Tenet Healthcare (THC) and Community Health Systems (CYH) are all up over 180 percent over the past two years. XHS has 18 percent of its assets in hospital stocks, the most of any ETF.
All of the big, broad health-care ETFs have less than 2 percent of assets hospitals. That's because these market capitalization-weighted ETFs track large-cap health-care stocks and many publicly traded hospitals are small- and mid-cap companies. While such stocks would have little impact in a market-weighted ETF, with XHS, every holding gets a 2 percent weighting, whether it's a large-, mid- or small-cap stock.
A narrowly focused rival to XHS is the iShares U.S. Healthcare Providers ETF (IHF), which has 14 percent of its assets in hospitals. The market-cap-weighted fund is highly concentrated, with its top 10 holdings making up 62 percent of its portfolio. XHS has outpaced it by 7 percent over the past two years and is cheaper, with an expense ratio of 0.35 percent, compared to IHF's 0.46 percent. (The average expense ratio for a health-care ETF is 0.45 percent.) In addition, XHS yields 3.1 percent, compared to IHF's 0.66 percent.
The health insurers in XHS's portfolio could also help keep it an outperformer. They make up about 20 percent of assets. A recent article in ETF Trends notes that Credit Suisse analyzed which insurers are best positioned in early days to get customers on the 36 federally run health care insurance exchanges, and WellPoint (WLP), Aetna. (AET) and Humana (HUM) were on the list. Each represents 2 percent of XHS's assets.
One concern with XHS's exposure to insurers: With the increased pickup in medical activity, it's unclear how much of their newfound revenue will go out in the form of payments to the insured.
Another plus is the Street's early nod to XHS. When the Supreme Court upheld Obamacare in June 2012, XHS was the best performer among its peers for the day. It gained 2.5 percent, driven largely by its hospital holdings. IHF was up 1.5 percent, and every other health-care ETF was down between 0.24 percent and 2.44 percent. While many of the health-care ETFs rebounded in the following weeks, institutional money snapped up the hospital stocks held in XHS. The market was saying those hospitals are likely big winners in Obamacare.
And then there's the baby boom. By 2060, the number of Americans older than 65 will more than double, to 92 million, accounting for one in five Americans. That's a powerful tailwind to the health-care sector. And you know how baby boomers are -- they're going to do their best to live forever, driving still more money into the sector. That may be the ultimate demographic bet.
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oh and I just had to add this little tidbit of info: it appears much to the chagrin of a Yale professor, that Tea Party members or Conservatives, whether Moderates or not-so-Moderates are SMARTER than their liberal counterparts!! hehe nothing I didn't already know!!
People who do not have traditional employer provided insurance, not all, but a significant amount are people that do not have the skills to be offered employer medical insurance. Typically in low paid hourly jobs with lots of direct supervision, with little break time to handle insurance problems on the phone. I know people like this. Not the sharpest knives in the draw.
These poor souls will never be able to navigate Doctors in the group, co-payments, deductibles, and fighting with the insurance company on the phone during the work week during the 15 minute coffee break. Many of them will end up in collections and do not understand that when you go to collection, you can not communicate with the Doctor again. They will get collection calls every day. Think about the insurance crap we all go through, that took a lifetime to learn.
Kind of like the dopes that were given loose credit for houses they could not afford or understand what was involved in owning a home.
Also Doctors will be afraid they will not be paid. There are going to be provider issues.
You have seen nothing yet!
Elections have consequences. Hope and change. Welcome to the adult world.
Illegal immigrants are exempt from having to purchase insurance, and are also exempt from the fine.
Stop the immigrant invasion by ANY means necessary.
Enough lies - 100% increase in Texas for premiums!
"Gov. Rick Perry’s rejection of Medicaid expansion will force private health insurance premiums to rise by an average of 9.3 percent for Texans buying coverage on their own, a new study finds."
If Texas had a governor with an IQ above 100 that would accept to expand Medicaid using Federal dollars then Texas healthcare premiums would actually go down.
Thanks to the Affordable Care Act I can now provide my employees with healthcare coverage paid 100% by my company, Something I could never do before.
My healthcare insurance will cost a bit less as well but I will be getting better coverage.
The Affordable Care Act is a good thing for this country, we will be that much stronger because of it. It is working and, unless it gets gutted or castrated by the extreme right in some way, it will continue to improve the lives of the vast majority of us.
I support it because it works.
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