Health Care – Another Defensive Sector Bites The Dust
September 25, 2008
By Simon Maierhofer
“What doesn’t kill you makes you stronger” seems to be the new philosophy many American’s live by.
Health care has often been considered a safe-haven in recessionary environments. “People continue to get sick and have to go to the Doctor” was the view on Main Street and Wall Street alike. Along with many other investment strategies, this one seems to heading for the dumpster.
The Health Care Select Sector SPDRs (AMEX: XLV), arguably the most popular health care ETF, is down 14.06% for the year and 25% since May. XLV was outperformed by two of its market cap weighted peers. The iShares DJ U.S. Health Care Sector Fund (NYSEarca: IYH) and the Vanguard Health Care ETF (NYSEarca: VHT) were down only 11.12%.
Once again trailing in performance were the PowerShares health care ETFs. The quant selected Dynamic Health Care Sector Portfolio (AMEX: PTH) was down 14.67%. The fundamentally weighted FTSE RAFI Health Care Sector Portfolio (Nasdaq: PRFH) came in worst in class with its negative 14.92% return. The best in class bragging rights go First Trust with its Health Care AlphaDEX Fund (AMEX: FXH), down 10.98%. >>> How to identify best in class sector ETFs
Insurance companies have had to send out more late notice statements and seen more policies lapse in 2008 than previous years. Follow-up visits, flu-shots and basic “physical maintenance” seem to be taking a back seat to paying rent or putting food on the table.
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Biotech, pharmaceutical's younger cousin, has a whopping 34%, 10 year average return from August to February. The past 5 years have not been as convincing with a 15% return. SPDRs S&P Biotech (AMEX: XBI) is a good option for anyone who wants to play this trend. Despite a 15% correction over the past 40 days, biotech is one of the only sectors that has been able to keep above water this year.
There is one health care ETF that has rewarded investors handsomely. Needless to say, it’s an inverse performing ETFs "with a kick" (double leverage). The ProShares UltraShort Health Care ETF (AMEX: RXD) is up 22.88%. Earlier this year, in June, Rydex launched the Rydex Inverse 2x S&P Select Sector Health Care ETF (AMEX: RHO). So far, RHO trades on thin volume which has resulted in a somewhat erratic performance.
In an environment where most boats sink with the tide, it’s nice to have the ability to buck the trend with short and leveraged short ETFs.