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Here's Why Healthcare ETFs Are Rallying Post Elections

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Wall Street is showing strong optimism post elections even as the results to the presidential race remain unclear. Notably, the Dow Jones Industrial Average has increased 7.1% week to date. Moreover, the other two major indices, the S&P 500 and Nasdaq, have surged around 7.4% and 9%, respectively, over the same time period. In fact, all major indices are on pace for their biggest weekly increase since April. Going on, considering the gains on Nov 5, it was for the first time since 1982 that the Dow and S&P 500 increased at least 1% in four consecutive sessions.

Leading the market rally on the day after the U.S. elections were health insurers, pharmaceutical companies and medical device stocks as chances of a “blue wave” look dim. In fact, the S&P Supercomposite Managed Health Care Index, which is a benchmark of insurers, surged to a record high and biotechs saw the biggest rise since March. Biogen Inc., Eli Lilly & Co., Cigna Corp, Anthem Inc. and UnitedHealth Group Inc. were the top five gainers on Nov 4.

Let’s take a look at the factors that are driving the healthcare sector post elections.

Factors Behind Healthcare Sector Optimism

In the current scenario, chances of a divided Congress seem more likely where Republicans can continue to control the Senate and Democrats the House. As a result of this political gridlock, major and stringent changes in the health care sector and the corporate tax policies will be very difficult to implement. Thus, easing worries regarding major policy changes largely drove the relief rally in the healthcare and biotech spaces.

Commenting on the current situation, Spencer Perlman, an analyst at Veda Partners, has said that a Republican Senate means "the public option and direct government negotiation on drug prices are dead for at least the next two years," per an Axios article. Going on, Asad Haider, a Goldman analyst, has said that divided government is a positive for managed-care players as they will be exposed to decreased threats of a “large progressive public option” or a corporate tax increase, per a Bloomberg article.

An analyst with Jefferies sees continued drugmaker deals in the space, especially for companies that are aiming at new cancer medicines, according to a Bloomberg article.

Healthcare ETFs That Gained

The chances of a divided government is benefiting all the sectors in the healthcare space. In fact, SVB Leerink’s Geoffrey Porges told clients in a research note that “even though drug pricing and reimbursement reform have seen support from both Democrats and Republicans, we expect the Senate’s filibuster-proof, 60-vote supermajority requirement to pass major legislation will shield the biopharma industry from the most controversial reforms,” per a Bloomberg article.

Against this backdrop, let's take a look at some ETFs belonging to the healthcare sector that have gained since U.S. elections:

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report) — up 4.8% since Nov 3

This fund offers companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. It follows the Dynamic Pharmaceutical Intellidex Index. The product has AUM of about $310.7 million. The fund charges 56 basis points (bps) in fees and expenses (read: Wining & Losing Sector ETFs Post Election Day).

VanEck Vectors Pharmaceutical ETF (PPH - Free Report) — up 4.3%

This ETF follows the MVIS US Listed Pharmaceutical 25 Index. The product has amassed $210.2 million in its asset base. Expense ratio is 0.36% (read: Q3 Earnings Fail to Impress Pharma ETFs).

iShares Nasdaq Biotechnology ETF (IBB - Free Report) — up 6%

This fund seeks to provide exposure to U.S. biotechnology and pharmaceutical stocks and tracks the Nasdaq Biotechnology Index. The fund has an AUM of $9.22 billion, with an expense ratio of 46 bps (read: How Will Biotech ETFs React to These Q3 Earnings Release?).

SPDR S&P Biotech ETF (XBI - Free Report) — up 6.1%

The fund seeks daily investment results, before fees and expenses, which match the S&P Biotechnology Select Industry Index. It has AUM of $5.59 billion and an expense ratio of 0.35% (read: ETFs That Gained the Most in One of Best Post-Election Rallies).

The Health Care Select Sector SPDR Fund (XLV - Free Report) — up 4.6%

The most popular healthcare ETF, XLV follows the Health Care Select Sector Index. The pharma sector, Healthcare equipment and supplies, healthcare providers and services, and biotech take large space in the fund. The product manages nearly $23.05 billion in its asset base. The expense ratio is at 0.13% (read: Healthcare to Post Solid Q3 Earnings Growth: ETFs in Focus).

Vanguard Health Care ETF (VHT - Free Report) — up 4.8%

The Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. This fund comprises stocks of companies involved in providing medical or health care products, services, technology, or equipment. The fund has a 0.10% expense ratio. It has accumulated $11.41 billion in its asset base.

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