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A Look at Affordable Health Care ETFs

NEW YORK (TheStreet) -- The health care sector has been ground zero in the ongoing ideological battle that shut down the U.S. government this month. Regardless of anyone's politics, the health care sector will become an increasingly important part of the market as global demographics provide a positive catalyst while domestic politics create a negative catalyst or at the very least create uncertainty.

The more than 70 million baby boomers are, of course, moving into retirement which provides the expectation of needing more medical attention. Other economically developed countries also have aging populations and while emerging markets tend to have younger populations, increased economic prosperity in those countries should mean more demand for advanced health care options.

Investors who agree on a future of increased importance for the sector but who do not want to get blindsided by picking "losers" in how the industry evolves under the Affordable Care Act can of course consider exchange traded funds as a solution.

Index Universe tracks 24 funds in the sector excluding levered and inverse funds. The simplest exposure is the broadest exposure through a fund like the Health Care Select Sector SPDR (XLV) or the Vanguard Health Care ETF (VHT).

Funds like Health Care Select Sector SPDR and Vanguard Health Care ETF are emotionally easy to own because they are dominated by familiar mega cap stocks like Johnson & Johnson (JNJ) and Pfizer (PFE). But they also have decent exposure to the growth potential of biotechnology. These are market cap weighted fund so biotech giants like Gilead (GILD) and Amgen (AMGN) are well represented in the fund. Biotech makes up close to 20% of both funds.

Of course for anyone wanting to narrowly focus on biotech there are several funds including the iShares Nasdaq Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI). From the 2009 low biotech has outperformed the broader sector funds and that is likely to continue as the current Fed induced melt up looks poised to keep rolling on.

Health Care Select Sector SPDR, Vanguard Health Care ETF and iShares Nasdaq Biotechnology ETF have a combined $13 billion in assets out of the $24 billion invested in the sector but those three miss out on two important groups of funds.

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