Health Care SPDR In Focus Ahead Of Obamacare Decision

Ahead of the pending Supreme Court decision on the U.S. health care reform, also known as Obamacare, S&P Capital IQ believes the Health Care Select SPDR XLV is worthy of consideration. A decision on whether to uphold President Obama's sweeping health care legislation or strike all or parts of it down is expected by mid-June. Year-to-date, the $4.3 billion Health Care Select Sector SPDR has risen more than 5% as investors have shunned riskier sectors in recent week in favor of lower beta fare. S&P Capital IQ sees three potential scenario that could impact XLV and some of its 53 constituents. The best case scenario, according to S&P Capital IQ health care analyst Jeffrey Loo, would be a ruling that the individual mandate is constitutional and the health care reform law continues to be implemented as scheduled. Under this scenario (Scenario 1), the health care sector would benefit from approximately 32 million additional insured customers (phased in from 2014-2019). Various health care sub-industries made significant concessions in exchange for the potential huge influx of insured customers. Loo believes the sub-industries that would benefit the most under this scenario would be Health Care Facilities, Managed Health Care, Health Care Services, and Health Care Distributors, according to the note. Another scenario would involve striking down the individual mandate, invalidating the mandate along with the rest of the law because the court could view the mandate as a central function to Obamacare. S&P Capital IQ believes this scenario would have a neutral impact on the overall health care industry. In what S&P Capital IQ views as the worst-case scenario, the Supreme Court would strike down the individual mandate, but keep the rest of Obamacare in tact. The Congressional Budget Office estimates that if the individual mandate is struck down, approximately only 16 million additional Americans would obtain insurance, with the vast majority coming from the expansion of Medicaid, assuming the Court determines the expansion of Medicaid is lawful, the research firm said in the note. XLV garners an Overweight rating from S&P. The ETF, which has a P/E ratio of almost 12.2, allocates more than half its weight to traditional pharmaceuticals firms. Dow components Johnson & Johnson JNJ, Pfizer PFE and Merck MRK combine for a third of the fund's overall weight. Other top-10 holdings include Abbott Labs ABT, Amgen AMGN and Medtronic MDT. Health care equipment and biotechnology names account for 16% and 11%, respectively, of XLV's total weight. Abbott, Amgen, Johnson & Johnson, Merck and Pfizer all receive four-star ratings from S&P.