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Health ETFs Prosper Amid Regulation Threat

Seventeen exchange-traded funds that invest in health care and biotechnology companies have outperformed the S&P 500, according to TheStreet.com Ratings' database, even as the industry faces threats of regulatory strangulation and quasi-nationalization.

The market-beating performances, over one, three and 12 months ended Jan. 31, include much of the campaign, election and inauguration of a president who vowed to keep health care costs in check, which could erode companies' profits.

There was a spirited rally that followed the exit of Tom Daschle as the health and human services secretary nominee. Stocks held by the funds could benefit from gridlock over the selection of a new candidate to head the HHS, especially one less committed than Daschle to stringent government control over the health care industry.

Three of the ETFs in the accompanying table posted gains during the brutal January market slide. Four on the list managed to stay above water during the latest three-month period, when the benchmark S&P 500 declined more than 13%.

Over the most recent 12 months, HOLDRs Biotech (BBH) climbed 7.7%, while three health/biotech ETFs fell only by single digits.

Typical of the ETFs in the table is the largest member of the group, the $2.4 billion Health Care Select SPDR (XLV), which has been around since 1998. Its top holdings include health/biotech icons such as Johnson & Johnson (JNJ), Merck (MRK), Abbott Labs (ABT) and Amgen (AMGN).

HEALTH/BIOTECH ETFs -- NOT ACTING SICK OVER NEW ADMINISTRATION
NAME, TICKER & TheStreet.com RATINGS GRADE
TOTAL NET ASSETS ($MIL.)
TOTAL EXPENSE RATIO (%)
1-MO. TOTAL RET'N (%)
3-MO. TOTAL RET'N (%)
12-MO. TOTAL RET'N (%)
First Trust AMEX Biotechnology (FBT) C
49.6
0.60
-1.93
-5.67
-15.71
First Trust Health Care AlphaDEX (FXH) D
8.5
0.70
2.38
1.25
-23.64
Health Care Select Sector SPDR (XLV) B+
2,377.1
0.22
-1.21
-0.79
-20.61
HOLDRS Biotech (BBH) A-
1,370.8
0.00
-1.22
0.07
7.72
HOLDRS Pharmaceutical (PPH) A+
1,037.7
0.00
-3.23
-0.56
-16.96
iShares DJ US Medical Devices Idx (IHI) C-
291.4
0.48
3.40
-12.09
-30.41
iShares DJ US Pharmaceuticals (IHE) B
71.5
0.48
-3.29
2.61
-13.50
iShares Dow Jones US Healthcare (IYH) B+
857.7
0.48
-1.62
-2.60
-19.99
iShares Nasdaq Biotechnology (IBB) C+
1,754.9
0.48
-0.45
-0.95
-9.34
iShares S&P Global Healthcare (IXJ) A
675.1
0.48
-5.08
-4.22
-21.52
PowerShares Dynamic Biotech&Genome (PBE) C-
199.0
0.63
0.44
-5.88
-20.81
PowerShares Dynamic Hlthcare (PTH) C-
119.0
0.66
-2.55
-6.25
-31.58
PowerShares Dynamic Pharmaceuticals (PJP) B
106.6
0.63
-4.84
-0.38
-11.83
PowerShares FTSE RAFI Health Care (PRFH) C
14.2
0.75
-4.25
-3.97
-22.13
SPDR S&P Biotech ETF (XBI) C-
264.3
0.35
-1.59
-1.33
-4.73
SPDR S&P Pharmaceuticals ETF (XPH) A-
9.3
0.35
-2.82
8.27
-6.44
Vanguard Health Care ETF (VHT) B
614.0
0.20
-1.71
-2.51
-20.47
-
S&P 500 Total Return Index
-
-
-8.21
-13.76
-38.26
Source: TheStreet.com Ratings & Bloomberg (Data as of 1/31/2009)
For an explanation of our ratings, click here

Note: Richard Widows has long-term positions in a retirement account in IBB, IXJ and XBI.

Richard Widows is a senior financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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