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ETF Update: Healthcare Has a Heartbeat; A Good Time for Muni-Bond ETFs?

by: Tom Lydon September 04, 2008 | about stocks: IHE / IHI / MUB / PZA / SMB / TFI / XPH    
Tom Lydon

Tom Lydon

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Healthcare ETFs: Pulsing Amid Dire Conditions

Healthcare and related exchange traded funds have remained on a steady beat while the rest of the market has faced challenges.

With the coming election in November, everyone’s wondering what will become of healthcare when either John McCain or Barack Obama takes office.

Conventional wisdom tells us that if Obama takes office, Big Pharma will take a hit in profit margins. But overall, the healthcare sector can be risky to dabble in during these uncertain political times, ponders Gary Gordon for ETF Expert. He rightly points out that investing is never one-dimensional, and you can’t solely blame politics for what happens in pharmaceuticals.

As of now, pharmaceuticals have been coming out ahead, and meds are on an upward trend. Investors may have renewed faith in Democratic leadership, as Obama has been pushing for more affordable health care, rather than universal health coverage. Are investors convinced that Obama and McCain are unlikely to interfere with bottom line drug makers and distributors?

While we don’t know where the markets are going or who’s going to win the election in a few months, what we do know is that the trend in healthcare is up right now, and these three funds are above their trend lines.

  • SPDR Pharmaceuticals (XPH), up 0.9% year-to-date; up 6.6% in the last three months
  • iShares Dow Jones Pharma Fund (IHE), down 2% year-to-date; up 5.3% in the last three months
  • HealthShares Medical Devices (IHI), up 3.1% year-to-date; up 7.9% in the last three months

Timing Could Be Right To Add Muni-Bond ETFs

Do municipal bond exchange traded funds (ETFs) have a place within your portfolio?

Fund companies have been churning out these new types of ETFs over the past year, and if you believe tax rates are going to go up, then these ETFs may look even more attractive, says Eleanor Laise for The Wall Street Journal.

The troubled times have actually weighed these funds down, with the credit crunch and mortgage meltdown in full effect. The bonds are so bogged down, they may actually be a good buy now, some say.

While muni-bond funds do have many tax advantages, their yields are lower than those of U.S. Treasury bonds. Municipal bonds are issued by state and local governments, and often times are exempt from federal, state and local income tax.

As of now, safety-minded investors have fled toward the Treasury bond ETFs, and this has actually driven the prices up and the yields down. The rseult has been that they’re now about equal with the muni-bond. Muni-bond ETFs have low costs and the average expense ratio is at 1.01% of assets. Investors who believe tax rates are going to go up have a reason to consider the bonds.

Laise recommends the calculator at Investing In Bonds - you can enter your state, net taxable income and tax-filing status to see the yield you need to earn on a taxable security to match the tax-free yield of a muni bond.

Some to choose from:

  • iShares S&P National Municipal Bond Fund (MUB), up 0.6% year-to-date
  • PowerShares Insured National Municipal Bond Portfolio (PZA), down 3.1% year-to-date
  • SPDR Lehman Brothers Municipal Bond (TFI), up 0.7% year-to-date
  • Market Vectors-Lehman Brothers AMT-Free Short Municipal Index (SMB), up 2.2% since Feb. 28 inception


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This article has 3 comments:

  •  
    Sep 05 02:04 PM
    You missed PVI, which I happen to like because it's less volatile and has a better yield than a MMA.

    ~X~
    Reply
  •  
    Sep 08 12:37 AM
    Healthcare is the latest fad. When budgets get stretched and jobs are lost (insurance therewith), healthcare will not prove immune to cost pressures. The industry is bloated and inefficient. Half of all the money spent on health care in this country is wasted in the insurance industry. Not a good sector to invest in.
    Reply
  •  
    Oct 15 07:27 AM
    I was drawn to your post on MUB after reading Dr.Steenbarger at Traderfeed. I have posted three charts that may be of interest to your readers at my blog tradewithramki.com

    Please consider drawing your readers' attention to these charts.
    Reply
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