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2 Funds to Gain From Trump's New Health Insurance Rule

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The Trump administration recently released the final rule pertaining to short-term and limited-duration insurance coverages. The new order provides cheaper and effective short-term health plans to individuals and businesses that find policies under Obamacare unaffordable.

The move is expected to assist small businesses as well as working families vulnerable to the rise in healthcare costs. Such developments are likely to generate higher demand for health insurance plans. Under such circumstances, investing in funds having significant exposure towards health insurance companies seems prudent.

Trump’s Short-Term Health Plans to Overshadow Obamacare

The new rule allows customers to purchase limited-duration health plans for periods as short as 12 months. Moreover, such plans can be renewed post termination of coverage after the said period and is renewable for further 24 months. Under Obamacare, however, the maximum period allowed on the policy was three months.

Such an accommodation makes these health plans less pricey compared to Obamacare-compliant policies. This is because these plans can be customized to suit policyholders’ needs and do not cover the mandatory and costly essential health benefits under the current federal law passed by the Obama administration.

Despite receiving huge subsidies on premiums through Obamacare exchanges, a customer ends up paying overwhelmingly high deductibles and out-of-pocket maximums (OOP) on such policies. Notably, deductibles under the Silver Plan have increased to the upward of 13% in just a year’s time. Working families that usually opt for such coverages would have to pay a lot lesser under the short-term plans of their choice.

Per an estimate by Centers for Medicare and Medicaid Services, approximately 600,000 Americans would opt out of Obamacare coverages by next year. Rising costs associated with such health plans would result in about 1.6 million people in America moving to short-term policies by 2022, the CMS estimated.

2 Best Funds to Buy Now

Given such positives, we have highlighted four insurance related mutual funds that will benefit from such developments.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Insurance Port (FSPCX - Free Report) with a Zacks Rank #2 (Buy), invests a major portion of its assets in securities of companies principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX distributes its dividends and capital gains, if any, in April and December every year. 

This Sector-Finance product, as of the last filing, allocates the fund in Large Value Stocks.  Further, as of the last filing, Chubb Corp, American International Group, Metlife Inc and Prudential Financial were the top holdings for FSPCX, constituting 12.2%, 8.9%, 7.4% and 3.8%, respectively.

The Fidelity Select Insurance Port fund, managed by Fidelity, carries an expense ratio of 0.79%.  Moreover, FSPCX requires a minimal initial investment of $2,500.

FSPCX has a history of strong positive total returns for over 10 years.  Specifically, the fund’s returns over the three and five-year benchmarks are 9% and 11.1%, respectively. To see how this fund performed compared in its category, please click here.  

FSPCX’s performance, as of the last filing, when compared to funds in its category was in the top 41% over the past three years and in the 38% over the past five years.

PGIM Jennison Financial Services A (PFSAX - Free Report) , a Zacks Ranked #2 (Buy) fund, invests a huge portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies. PFSAX distributes its dividends and capital gains annually. 

This Sector-Finance product, as of the last filing, allocates the fund in Large Value, Large Growth and Small Value Stocks. Further, as of the last filing, Chubb Corp and Metlife Inc were the top holdings for FSPCX, constituting 4.5% and 4.3%, respectively.

The PGIM Jennison Financial Services fund, managed by Prudential, carries an expense ratio of 1.37%.  Moreover, PFSAX requires a minimal initial investment of $2,500.

PFSAX has a history of strong positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 3.8% and 5.2%, respectively. To see how this fund performed compared in its category, please click here.  

PFSAX’s performance, as of the last filing, when compared to funds in its category was in the top 87% over the past 3 years and in the 94% over the past 5 years.

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