Some healthcare exchange traded funds have, relative to previous years, delivered disappointing performances in 2016. Much of that disappointment is attributed to presidential election yammering, courtesy of both parties, aimed at quashing high drug prices.
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There is no refuting the healthcare sector's leadership during the current bull market, and, love it or hate, the Affordable Care Act has had something to do with that.
The Health Care Select Sector SPDR (XLV), the largest healthcare ETF by assets, has been one of the best-performing traditional sector ETFs since President Barack Obama took office in early 2009. Every year since 2010 has seen multiple healthcare ETFs rank among the top 10 sector ETFs on an annual basis.
That doesn't mean XLV and other healthcare ETFs have proven immune from Democratic nominee Hillary Clinton's rhetoric on drug prices. Additionally, Clinton has sounded off on inversion deals, previously a tactic used by some healthcare companies to gain favorable tax treatment by acquiring a foreign competitor and establishing a foreign domicile.
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Additionally, the Obama Administration has been cracking down on inversion deals, an effort that has seen some mega healthcare mergers and acquisitions activity scuttled as a result. It's not a stretch to assume that Clinton would carry on that policy, which would damp large-scale healthcare mergers and acquisitions although M&A has been a significant driver of the healthcare sector's returns over the past several years.
Emergency Room ETF
One healthcare ETF that might be alright during a Clinton presidency is the SPDR S&P Health Care Services ETF (XHS), known in some circles as the emergency room ETF because of its exposure to hospital stocks.
Part of the Democratic Partys 2016 platform calls for a crackdown on price gouging by drug companies and capping prescription drug costs.Clinton has specifically spoken about cracking down on prescription drug pricing, and I think the drug sector would have to worry if she won because she could follow through on those promises, said State Street in a recent note. However, other health care sectors, such as hospitals and nursing homes, might do well, given her support of the Affordable Care Act.
So it can be said that if Donald Trump wins and the Republicans cobble together enough momentum to repeal Obamacare, XHS could be vulnerable. The ETF has been a clear beneficiary of Obamacare, gaining more than 132 percent over the past five years while going from once unknown and small to over $276 million in assets under management.
XHS holds 56 stocks on an equal-weight basis. Healthcare services providers and healthcare facilities operators combine for over 63 percent of the ETF's weight.
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