NEW YORK (TheStreet) -- Several pharmaceutical companies will report earnings this week, and investors that think their reports may trigger a bullish run for the sector can seek coverage through funds such as Health Care Select Sector SPDR Fund (XLV) - Get Health Care Select Sector SPDR Fund Report or iShares Dow Jones U.S. Pharmarceuticals (IHE) - Get iShares U.S. Pharmaceuticals ETF Report.

Major drug companies reporting earnings this week include

Abbot t Laboratories

(ABT) - Get Abbott Laboratories Report

, which reported this morning),

Bristol Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report

and

Eli Lilly

(LLY) - Get Eli Lilly and Company (LLY) Report

. ABT, BMY, and LLY account respectively for 5.4%, 3.8%, and 3.1% of XLV's net assets.

Healthcare ETFs with exposure to pharmaceuticals represent a way for investors to gain exposure to the sector over the long term while hedging against the risk in holding a single company in the sector.

For instance, the share value of a single company can fluctuate heavily when there are reports that a new drug being developed is either a success or a failure. Since an ETF is diversified, the impact of a single company's one day performance, however extreme, will usually not push a fund very far in either direction. This makes healthcare ETFs useful for capturing long-term trends.

The same rule applies for the short-term during earnings season, when a company may disappoint with earnings or report a negative outlook for the upcoming quarter unexpectedly.

In this case, investors can use a fund such as XLV to try and capture bullishness on the sector that can be brought about by a positive report from a single company. At the same time, they protect themselves from the risk of exposure to a company's flop after a negative report.

Granted, a negative report from a single company can still cause bearishness for the whole sector. In the case of the pharmaceuticals, though, low valuations make a sector-wide sell off unlikely. Pharmaceutical companies, broadly speaking, are trading with very low P/Es when compared to the rest of the

S&P500

.

This also means that the potential gains from an overall positive earnings season could feasibly outperform the market. This is especially true if companies can convince investors that declines in valuations driven by concern that patents on successful drugs will expire soon are overdone. Convincing shareholders of this fact would be a huge positive for companies.

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Abbott didn't get the ball rolling this morning, however. The company reported higher revenue, but higher expenses left profit unchanged from a year ago

. Johnson & Johnson

(JNJ) - Get Johnson & Johnson (JNJ) Report

, a major holding in the healthcare and pharma ETFs, lowered its full year guidance when it reported earnings yesterday. Shares fell 1.6% on Tuesday, but the healthcare and pharma ETFs suffered minimal losses, with XLV down only 0.3%.

In addition to XLV, investors have two other options for healthcare ETFs.

For investors seeking higher exposure to drug makers, there is

iShares Dow Jones U.S. Pharmaceuticals

(IHE) - Get iShares U.S. Pharmaceuticals ETF Report

, which has allocated 7.1% of its assets to ABT, 6% to BMY and 5.6% to LLY.

However, for the most portfolio diversity, there is

iShares S&P Global Health Care

(IXJ) - Get iShares Global Healthcare ETF Report

. It provides exposure to companies from around the world, although it is heavily weighted to the Europe, 33% of its net assets, and the U.S., 61 percent of net assets.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion Money Management did not own any of the equities mentioned.

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.