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Dion's Weekly ETF Blog Wrap

Insurers Look Compelling

Published 7/26/2010 2:55 p.m. EDT

Few industries have had to endure the degree of regulatory scrutiny that's been lavished upon insurers during the past year. From health care reform to the financial reform bill, insurers have been in the spotlight on several fronts.

With so much ongoing scrutiny and uncertainty, it's easy to understand why some investors might want to avoid the group altogether. The group has had some bright spots in earnings so far, however, and investors should at least consider gaining exposure to the group in the short term with a well balanced ETF such as the iShares DJ Insurance ETF (IAK) or the SPDR KBW Insurance ETF (KIE).

Aetna (AET) will be reporting results after the close today, and rival WellPoint (WLP) will be following on Wednesday. Analysts are expecting both firms to report an increase in earnings per share and a decrease in revenue. UnitedHealth Group (UNH), which has already reported results, set the stage by releasing a report that had a couple notable bright spots. With the health care reform bill behind us, UnitedHealth saw an uptick in enrollment and an increase in its medical care ratio. Aetna and WellPoint may very well follow suit.

Aflac (AFL), which got a glowing report from Barron's over the weekend, could also surprise investors. The Barron's feature singles out operating earnings as one potential source of strength. I recommended exposure to Aflac through KIE in a post late June titled "Get Some Insurance." I continue to believe that insurers such as Aflac dodged the bullet when it comes to financial reform.

With earnings ahead, the picture for insurers is compelling. Investors who are looking to gain exposure to health insurers specifically should consider the iShares Dow Jones US Healthcare Provider ETF (IHF). Those who are looking for a broader approach outside of the health care spectrum should check out KIE and IAK, both of which have exposure to Aflac.

At the time of publication, Dion Money Management was long IAK.

Don Dion is 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.

Dion also is 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.

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