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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to thrive over time as our global population grows, ages, and needs medical care, and to also get a boost from pending health-care reforms, the iShares Dow Jones US Healthcare Providers ETF (NYSE: IHF ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47 %. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed rather well, beating the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why health-care providers?
More than a handful of health-care providers had strong performances over the past year. HCA Holdings (NYSE: HCA ) , for example, surged 58%, as did Express Scripts (Nasdaq: ESRX ) . HCA operates hospitals and stands to benefit if President Obama's health reform package becomes law, as millions of suddenly insured people won't be ending up in emergency rooms and requiring costly care that they can't afford. Express Scripts, having merged with Medco Health Solutions, has been trading near 52-week highs recently, but it carries a lot of debt and faces competition in its arena.
UnitedHealth Group (NYSE: UNH ) gained 24%, exciting investors with its $4.9 billion merger with Brazilian health insurer Amil Participacoes S.A. The deal gives UnitedHealth significant geographical diversification, and Brazil's faster economic growth is another plus. Despite UnitedHealth's massive size, with a market capitalization near $60 billion, it has been a solid and consistent grower , though its future remains a bit murky until reform measures are finalized.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. WellPoint (NYSE: WLP ) is also involved in a $4.9 billion deal, buying Amerigroup (NYSE: AGP ) to greatly boost its Medicaid business. It's also, under an interim CEO, reorganizing itself into four business units.
The big picture
Demand for health care isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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