If Health Care Reform Wins, ETFs Would Lose

On top of seeing his approval ratings dropping below 60%, President Obama is facing continued opposition from both ends of the political spectrum concerning his plans to reform health care. While Republicans have been against the plan from the get-go, a number of issues, including the president's insistence on passing the plan before the August recess, have left many blue-dog Democrats second-guessing the reforms.

On Wednesday night, the President's prime-time address sought to ease the stresses that many are feeling over his ambitious reform bill. Obama insisted that implementing the $1 trillion plan is critical to our economic recovery. At a crucial point in his presidency, increasing frustrations are hindering his ability to regain momentum for his domestic agenda.

Health care ETFs will benefit from this increased tension, as the companies in their indices will suffer if Obama's plan is approved.

As Obama and Congress butt heads over the issue of health care reform, earnings reports from the sector's companies continue to come in. Pfizer (PFE - commentary - Trade Now) is the most recent major health care company to release its earnings report. Like many companies, its second-quarter earnings were markedly below the numbers from the same time last year. However, on a positive note, PFE managed to beat Wall Street expectations, leading the maker of Lipitor to boost its 2009 profit view.

PowerShares Dynamic Healthcare Services (PTJ - commentary - Trade Now) and iShares Dow Jones US Healthcare Providers (IHF - commentary - Trade Now) are two of the many ETFs that have put investors in the middle of the health care reform debate.

These two funds in particular may be more volatile than others in the sector. As ETFs centered on health care providers, the companies in their indices would stand to lose the most if the government were to take control of the country's health care. However, if Obama's plan fails to pass, they are also likely to bounce higher than others in the sector.

Investors holding portions of their portfolios in health care should be prepared for volatility as this controversial set of reforms continues to make its way through Washington.

At the time of publication, Dion had no positions in stocks mentioned.

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Know What You Own: Other biotech and pharmaceutical stocks include Merck (MRK - commentary - Trade Now), Novartis (NVS - commentary - Trade Now), Amgen (AMGN - commentary - Trade Now) and Biogen (BIIB - commentary - Trade Now).

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Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.