Opinion: How to invest in health-care stocks regardless of what happens in Washington, DC – MarketWatch

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The fate of American health care has been uncertain in the past 12 months, and it got even more so Thursday when President Trump signed an executive order that would enable the sale of cheaper policies with fewer patient protections.

Still, the sector remains a compelling long-term play.

After Donald Trump’s election in 2016, there were hopes of a challenge to the Affordable Care Act. But the specifics of various health-care proposals seemed to be good for some companies and bad for others.

There were concerns that proposals to cut Medicare spending would keep patients from seeing their doctors and receiving certain types of care. There were also plans to eliminate targeted taxes on medical devices, which may have boosted companies in that industry. And, of course, fewer regulations to keep drug costs in check would improve profit margins for biotech and pharmaceutical companies.

Ultimately, all the speculation didn’t matter. Even though the Senate did regroup around the Graham-Cassidy bill in September, that effort failed like all the others. Now it appears the Republican majority has moved on for good. And Trump is now trying to get around the Affordable Care Act.

Some politicians may see that as a disappointment, but health-care investors still have some spring in their step. The popular iShares Dow Jones Healthcare ETF IYH, -0.16%  is up more than 20% this year to outperform the S&P 500 SPX, -0.17% And two of the top three performers in the benchmark index so far in 2017 — Vertex Pharmaceuticals Inc. VRTX, -0.03%  and Align Technologies Inc. ALGN, -0.04% both of which have more than doubled since Jan. 1 — are in the health-care sector.

I frequently talk up health-care investments as powerful long-term plays, given the demographic shift in the U.S. and the recession-proof nature of the sector, among other factors. But there’s also a big profit potential right now, as there’s no more uncertainty about legislative changes.

If you’re looking to get into health-care stocks now that the dust has settled on any threat of an Obamacare repeal, here are five investments to consider:

Global X Longevity Thematic ETF

The Global X Longevity Thematic ETF LNGR, +0.31% “seeks to invest in companies positioned to serve the world’s growing senior population.” Considering that the share of Americans over age 65 will rise to roughly 24% by 2060 from 15% today, it’s easy to understand the appeal of this fund.

Top holdings include diabetes powerhouse Novo Nordisk NVO, -0.65%  and Regeneron Pharmaceuticals Inc. REGN, -1.28% which has treatments for cancer and high cholesterol, among other products. These picks are set to profit from an increase in the elderly population, but there are also more unconventional holdings, including U.K. builder McCarthy & Stone MCS, -1.61% which specializes in senior housing.

Considering the unique nature of this ETF, its annual fees of 0.68% of assets seem reasonable. That’s only $68 for every $10,000 invested.

This isn’t merely a long-term play that requires you to be patient to see success. During 2017, the fund has returned 27%, almost doubling the performance of the S&P 500.

iShares U.S. Healthcare Providers ETF

The biggest winners after the death of proposed health-care reforms earlier in 2017 — other than the millions of patients who get to keep their coverage — are insurance companies and direct service providers.

The health-care exchanges have created more “customers” for insurers in the past few years, and the lack of reform to Medicare is a boon as well. UnitedHealth Group Inc. UNH, -1.20% Humana Inc. HUM, +0.44% and Aetna Inc. AET, -1.16%  collectively cover almost half the Medicare Advantage marketplace, and all have really taken off after it became clear that Republicans weren’t going to pass anything.

And while Democrats continue to crow about the prospect of a single-payer system of national health insurance, we are a long way from any of those pipe dreams becoming a reality.

In the meantime, consider riding the iShares U.S. Healthcare Providers ETF IHF, -0.73% which is made up of the biggest names in insurance, pharmacy-benefits giants including Express Scripts Holding Co. ESRX, -0.07%  and providers such as HCA Healthcare Inc. HCA, -1.73%

For better or worse, we have a for-profit system — and insurers and providers are making a ton of profits right now.

SPDR S&P Biotech ETF

One of the most powerful ways to play high-growth companies creating the next generation of blockbuster drugs is the SPDR S&P Biotech ETF XBI, -0.09% a fund that has soared over 45% this year.

Individual biotech stocks can be risky plays, soaring on positive drug trials or crashing after failure to get an FDA approval, and a diversified fund is a good way to smooth out the ride.

I prefer XBI to other biotech funds because it subscribes to a modified equal-weight index that prevents a single holding from representing too much of the portfolio. For instance, right now the largest holding is only 3% of its total. Compare that with the popular iShares Nasdaq Biotechnology ETF IBB, -0.52% where the top three holdings represent a whopping 25% of the portfolio.

XBI is cheaper to boot, with a gross annual expense ratio of 0.35%, or $35 on every $10,000 you invest.

If you want to play biotech, you want the picks with the greatest potential. And the methodology behind XBI ensures you have more of your assets in small, up-and-coming companies that might break out the most.

iShares Medical Devices ETF

A twist on the biotech theme is to play medical devices. While there is a ton of money to be made on breakthrough drugs, there are also plenty of patented medical technologies that are equally lucrative because they allow for better patient outcomes using cutting-edge design.

That’s exactly what the iShares U.S. Medical Devices ETF IHI, +0.42%  is trying to tap into. Top holdings include Medtronic PLC MDT, -0.41% which specializes in cardiovascular technologies, lab-equipment provider Thermo Fisher Scientific Inc. TMO, -0.04%  and Intuitive Surgical Inc. ISRG, +0.62% which makes equipment for robotic-assisted surgery.

Those stocks rallied on hopes that Obamacare’s medical-device tax would be rolled back, but don’t let that fool you into thinking they don’t have potential. These are high-growth companies, and the IHI fund has surged over 26% since Jan. 1.

Vanguard Health Care ETF

If you simply want to play a broad swath of health care, the Vanguard Health Care ETF VHT, -0.10%  is your best bet.

With rock-bottom expenses of 0.10%, the fund costs you just $10 annually for every $10,000 invested. And with over 350 holdings, you’ll be invested across the health-care sector, from biotechnology companies to medical-device manufacturers to health-care facility operators. Just look at the top three holdings for an example of that diversification — consumer-health giant Johnson & Johnson JNJ, +0.13% drugmaker Pfizer Inc. PFE, -0.27%  and UnitedHealth Group.

It’s not as tactical as some of the other health-care funds out there. But if you’re looking to cast a wide net and profit from all the sector has to offer, VHT is an excellent choice.