Mutual Fund Investing
Health Care Funds Suffer Amid Insurer Warnings
Kevin Baker
03/15/08 - 09:59 AM EDT
Headlines about health care funds catching the flu have been no joke this week for investors.
This week the, biggest U.S. health insurer, UnitedHealth Group (UNH Quote), actually complained that higher-than-expected influenza rates may impact first quarter earnings.
The bottom dropped out for the sector, as UnitedHealth's competitors Humana(HUM Quote) and WellPoint(WLP Quote) cut their full-year forecasts. Two of the largest adverse factors for these companies are rate competition for market share to attract Medicare prescription-drug-plan patients and higher-than-expected medical costs.
A low-interest-rate environment is also a negative to insurance companies, especially as medical-cost inflation routinely outpaces broader measures. Insurers are earning less interest income on the securities they buy with your health-care premium money.
Excluding inverse funds, the average health-care fund we track fell 2.6% for the five trading days ending March 13.
The worst-performing fund this week is the iShares Dow Jones U.S. Healthcare Providers Index(IHF Quote). This ETF lost 11% as holdings of Humana amputated 32% of shareholder value, WellPoint sliced off 31%, and UnitedHealth Group declined 16%.
In second place, the HealthShares Emerging Cancer ETF (HHJ Quote) lost 9.7% for the period. In a breathtaking drop of 88%, the fund's holding in Keryx Biopharmaceuticals(KERX Quote) was severely punished after its diabetic kidney drug failed to pass final-stage trials.
Similarly, Progenics Pharmaceuticals'(PGNX Quote) stock tumbled 64% after its colon drug didn't beat the placebo in a trial.
The third-place fund, Fidelity Select Medical Delivery Portfolio (FSHCX Quote), holds the three health insurers mentioned above, along with Aspect Medical Systems(ASPM Quote), a stock that lost just over half its value this week.
The New England Journal of Medicine reported that Aspect's Bispectral Index System project, used in 60% of hospitals, didn't reduce awareness during surgery as advertised.
Worst-Performing Health Care Funds
Ranked by returns for the week ending March 13
| Fund | Ticker | Rating | Fund Type | 1 Week Total Return |
| iShares DJ US Healthcare Providers Index Fund | IHF | B+ | ETF | -10.53% |
| HealthShares Emerging Cancer ETF | HHJ | E+ | ETF | -9.72% |
| Fidelity Select Medical Delivery Portfolio | FSHCX | C | Open-End | -9.23% |
| HealthShares Autoimmune-Inflammation ETF | HHA | U | ETF | -8.31% |
| HealthShares Ophthalmology ETF | HHZ | U | ETF | -7.92% |
| PowerShares Dynamic Healthcare Services Portfolio | PTJ | B- | ETF | -7.85% |
| HealthShares Orthopedic Repair ETF | HHP | U | ETF | -6.57% |
| Healthshares Infectious Disease ETF | HHG | U | ETF | -5.90% |
| ICON Healthcare Fund | ICHCX | D- | Open-End | -5.81% |
| HealthShares Composite ETF | HHQ | U | ETF | -5.63% |
For an explanation of our ratings, click here. The best-performing list is dominated by biotechnology funds. The king of the hill is ProFunds Biotechnology UltraSector ProFund (BIPIX Quote) at 4.13%. The fund is leveraged 150% to the Dow Jones U.S. Biotechnology Index, allocated to 73% biotechnology and 24% pharmaceuticals. Both this fund and the third-place fund, Biotech HOLDRs Trust (BBH Quote), have large holdings of industry leaders Amgen(AMGN Quote), Gilead(GILD Quote), Genentech(DNA Quote), and Biogen Idec(BIIB Quote). Higher-than-expected costs at health-care companies may translate into positive revenue surprises for pharmaceutical and biotech businesses. UltraShort Health Care ProShares(RXD Quote) gained 4.10% with 200% negative leverage to the Dow Jones U.S. Health Care Index. The fund bets against insurers and medical-delivery stocks such as Humana and WellPoint. Index member Immucor(BLUD Quote) drained off 20% of stockholder value with the disclosure that the company's acquisition of BioArray may dilute earnings for 2008. Best Performing Healthcare Funds
Ranked by returns for the week ending March 13
| Fund | Ticker | Rating | Fund Type | 1 Week Total Return |
| ProFunds Biotechnology UltraSector ProFund | BIPIX | C+ | Open-End | 4.13% |
| UltraShort Health Care ProShares | RXD | D | ETF | 4.10% |
| Biotech HOLDRs Trust | BBH | C- | ETF | 2.76% |
| Powershares Dynamic Pharmaceuticals Portfolio | PJP | D | ETF | 1.08% |
| AMIDEX Cancer Innovations & Healthcare Mutual Fund | CNCRX | E- | Open-End | 0.53% |
| First Trust AMEX Biotechnology Index Fund | FBT | D | ETF | 0.42% |
| Healthshares European Drugs ETF | HRJ | U | ETF | 0.37% |
| iShares Dow Jones US Medical Devices Index Fund | IHI | C | ETF | 0.30% |
| SPDR S&P Biotech ETF | XBI | C+ | ETF | -0.18% |
| Eaton Vance Worldwide Health Sciences Fund | EMHSX | D- | Open-End | -0.21% |
For an explanation of our ratings, click here. Stay healthy!