Market Overview

This ETF Has A Clean Bill Of Health For Now

This ETF Has A Clean Bill Of Health For Now

The iShares U.S. Healthcare Providers ETF (NYSE: IHF) has shaken out its politically-induced doldrums experienced earlier this year, rallying 30.44% off its 52-week low to cobble together a year-to-date gain of almost 18%.

Some analysts believe managed care and health insurance providers, including some of the 49 names dwelling in IHF, will see steadiness in the new year.

“Full year 2019 operating performance within the U.S. health insurance sector is expected to extend the trend of solid results established in recent years, and there are strong indications that this trend will be extended further in 2020,” Fitch Ratings said in a recent note. “As a result, Fitch Ratings maintains a Stable sector outlook and Rating Outlook for the health insurance sector in 2020.”

Why It's Important

Dow component UnitedHealth Group (NYSE: UNH) is IHF's largest holding, commanding nearly 24% of the ETF's weight. To a degree, so goes UnitedHealth, so goes IHF, but there are other important holdings in the fund, including CVS Health (NYSE: CVS), Cigna (NYSE: CI) and Centene (NYSE: CNC).

“As CVS Health Corporation and Cigna Corporation continue the process of integrating Aetna Inc. and Express Scripts Inc., respectively, and Centene Corporation is expected to complete its acquisition of WellCare Health Plans, Inc. in first half 2020, Fitch believes that the potential for material consolidation activity will be significantly reduced in 2020,” Fitch said. “Fitch expects consolidation activity in 2020 to focus more on modest buildout of care delivery opportunities in various regions or care management and technology initiatives.”

CVS, Centene and Cigna combine for almost a quarter of IHF's roster.

What's Next

Integral to IHF's fortunes in 2020 is political risk and if that can remain muted, meaning presidential candidates backing off of Medicare For All, the very issue that plagued the ETF earlier this year. Notably, appetite for Medicare For All may not be as robust as some candidates expect.

“Healthcare will certainly continue to be one of the most prevalent discussion topics among candidates for the U.S. presidency in 2020, but Fitch does not anticipate significant change in the structure of the U.S. healthcare system over the next couple of years,” the ratings agency said.

“While the health insurance sector has faced the risk of a replacement of the current private health insurance system with a single-payer system for decades, and this risk has been incorporated into Fitch's ratings, Fitch believes that public resistance to transformational change in the way healthcare is delivered and financed is slowly eroding as healthcare costs account for an increasing share of consumer expenditures.”

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