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Posted: December 17, 2013

Who’s afraid of health care?

Not investors

Ron Phillips

We’ve just experienced the 18th U.S. government shutdown. The stock market reacted by whipsawing up and down hundreds of points. Yet the S&P 500 just had another record close. So it looks like the health care-induced shutdown wasn’t all bad for investors.

What about past shutdowns? Did they help or hurt the markets?

GOVERNMENT SHUTDOWNS & STOCK MARKETS

Since the first government closure in 1976, according to SentimenTrader.com, the previous 17 shutdowns produced a positive leap in the market 65 percent of the time, after only one month.

WHAT THE FIGHT WAS ABOUT

This latest economic game of chicken was fought over the Affordable Care Act, also known as Obamacare. It’s a very emotional fight with very large economic consequences.

The Henry J. Kaiser Foundation states that Medicare spending will top $1 trillion per year in 2022. We will end up paying huge sums of money for an aging populations’ health care. That’s where we end up with the political debate. Do we pay now or pay later? Who pays ultimately? The government of the consumer?

Those are questions better left to the politicians.

HOW DO WE INVEST IN HEALTH CARE?

The health care sector is a significant industry. The Commerce Department reports that, in 2010, health care services generated $1.75 trillion in revenue. It employed 14 million people, accounting for 9 percent of the U.S. workforce.

One of the largest ETFs in the sector is SPDR Health care Fund (symbol: XLV). This is a fund of 56 different holdings, yielding 1.66 percent per year. It’s spread across pharmaceuticals, insurers and device makers.

Another well-known ETF is Vanguard Health Care Index Fund (VHT). It has 294 holdings, pays 1.29 percent annually and has very low expenses of 0.14 percent.

HEALTH CARE REITS

Health care Realty (HR) is a real estate investment trust with a 4.95 percent current yield. They own 204 properties worth $3 billion.

LTC Properties (LTC) pays 4.77 percent income from 179 different properties. LTC is a unique “play” on three areas: real estate, an aging population and health care.

INSURANCE COMPANIES

Another exposure to this sector is insurance providers. The three biggest, publicly-traded are United Health Group (UNH), WellPoint Inc (WLP) and Aetna Inc (AET).  All three have dividend yields below 2 percent but have very low P/E ratios, meaning they are relatively cheaper than the market and earning solid profits.

Keep in mind all of these ideas are educational only. They should be considered starting points on your further research. Also, any sector investments, like health care, should be less than 10 percent of a balanced and diversified portfolio. When possible, you should invest in mutual funds instead of individual stocks to spread your risk.

If you’d like information on investing for income, including the health care sector, request my free report “Creating Your Own Dynamic Income Portfolio.” Use the contact info below.

Ron Phillips is an Independent Financial Advisor and a Pueblo, Colorado native. He and his wife are currently raising their two sons in Pueblo. Order a free copy of his book "Investing To Win" by visiting www.RetireIQ.info or leaving a message on his prerecorded voicemail at 924-5070. Simply mention Promo Code #1001 when ordering.

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