Two ETFs Looking For a Revival
As we approach the waning half of the second quarter, there are a couple of ETFs that would likely prefer to put the first-half behind them.
The iShares Dow Jones U.S. Healthcare Provider Fund
(IHF) - Get Report
and the
PowerShares WilderHill Clean Energy Fund
(PBW) - Get Report
represent two sectors of the market that experienced particularly rough going in the early part of the year.
Year to date, these ETFs are down 22.4% and 17%, respectively.
While the Healthcare Provider fund has remained relatively flat over the past couple of months, the Clean Energy fund has begun to regain momentum in the past few weeks. It has rebounded 5.1% in the last month.
Will this reversal continue? Will the healthcare providers be brought back to life?
One Sick Quarter
In March, the health insurers were dragged lower by
Humana's
(HUM) - Get Report
revelation that it would need to slash its 2008 earnings forecast as it had been mispricing its Medicare prescription drug plans.
WellPoint
(WLP)
also contributed to the downward spiral, as it too was forced to cut its earnings outlook on account of rising medical costs and a weak economy.
During this time period, the ETF plunged 14% in less than two weeks.
"A whole series of events have hurt the sector," said Paul Alan Davis, a manager of the
Schwab Health Care Fund
(SWHFX) - Get Report
.
The Healthcare Provider ETF is heavily weighted with managed-care companies, which Davis acknowledges have been met with a great deal of adversity.
"We have trimmed our managed care to market weight from overweight," he said. "We still like the fundamentals and growth characteristics, but the momentum hasn't been too good right now. We are reluctant to take an underweight position in the event that things begin to rebound."
Davis does see some bright spots in terms of some of the ETF's individual names. Among its top holdings that he likes are
Medco Health Solutions
(MHS)
and
Express Scripts
(ESRX)
.
"The pharmacy benefit management companies can benefit from the trend towards cost containment," he says.
With it being an election year, it is understandable that there are some question marks looming over the sector. "The politics are going to be an overarching concern going forward," says Aaron Vaughn, a health care analyst for Edward Jones.
Vaughn also likes Express Scripts and he thinks that WellPoint could turn out to be a good turnaround story.
"Express Scripts is benefiting from a shift towards generics," he says. "WellPoint has been dinged a lot, but we think that it can get back to attractive earnings growth in 2009."
A Brighter Outlook?
The clean energy play has proven to be a rocky road as many players in this space are chasing lofty expectations. It appears that there is a fair amount of upside potential in the sector though.
"Some of the clean energy technologies are not extremely cost-effective yet," concedes Tony Welch, a portfolio manager at Sarasota Capital Strategies who specializes in ETFs.
Welch reminds investors to remain patient with the WilderHill Clean Energy fund. He thinks the ETF is a good way for investors to achieve diversity within the sector. His firm got into the fund the day that it came out in 2005.
"It's a long-term trend," he says. "Many of the underlying securities in the ETF are pretty volatile on their own though."
This ETF contains a host of solar names among its top holdings, including
Suntech Power Holdings
(STP)
,
Evergreen Solar
(ESLR)
,
JA Solar Holdings
(JASO)
and
First Solar
(FSLR) - Get Report
.
Welch notes that some of these companies are making big strides in their operations, but their stocks have become subject to speculation at times.
"First Solar has become a favorite of the momentum players," he says.
The fund also holds some fuel cell names such as
Energy Conversion Devices
(ENER)
and
FuelCell Energy
(FCEL) - Get Report
.
Welch finds this area of clean energy to be especially attractive. "Fuel cells are intriguing because ethanol is proving to not be a large-scale viable solution as an alternative energy source," he said.
For investors looking to get into clean energy, Welch also likes the
PowerShares Global Clean Energy Fund
(PBD) - Get Report
due to the international exposure that the ETF affords its investors. The fund has top holdings that include
REpower Systems
,
Nordex
and
Q-Cells
.