Health Care Funds Suffer Amid Insurer Warnings

Biotech funds dominate the best-performing list for the week.
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Headlines about health care funds catching the flu have been no joke this week for investors.

This week the, biggest U.S. health insurer,

UnitedHealth Group

(UNH) - Get Report

, actually complained that higher-than-expected influenza rates may impact first quarter earnings.

The bottom dropped out for the sector, as UnitedHealth's competitors

Humana

(HUM) - Get Report

and

WellPoint

(WLP)

cut their full-year forecasts. Two of the largest adverse factors for these companies are rate competition for market share to attract Medicare prescription-drug-plan patients and higher-than-expected medical costs.

A low-interest-rate environment is also a negative to insurance companies, especially as medical-cost inflation routinely outpaces broader measures. Insurers are earning less interest income on the securities they buy with your health-care premium money.

Excluding inverse funds, the average health-care fund we track fell 2.6% for the five trading days ending March 13.

The worst-performing fund this week is the

iShares Dow Jones U.S. Healthcare Providers Index

(IHF) - Get Report

. This ETF lost 11% as holdings of Humana amputated 32% of shareholder value, WellPoint sliced off 31%, and UnitedHealth Group declined 16%.

In second place, the

HealthShares Emerging Cancer ETF

(HHJ)

lost 9.7% for the period. In a breathtaking drop of 88%, the fund's holding in

Keryx Biopharmaceuticals

(KERX) - Get Report

was severely punished after its diabetic kidney drug failed to pass final-stage trials.

Similarly,

Progenics Pharmaceuticals'

(PGNX) - Get Report

stock tumbled 64% after its colon drug didn't beat the placebo in a trial.

The third-place fund,

Fidelity Select Medical Delivery Portfolio

(FSHCX) - Get Report

, holds the three health insurers mentioned above, along with

Aspect Medical Systems

(ASPM)

, a stock that lost just over half its value this week.

The New England Journal of Medicine reported that Aspect's Bispectral Index System project, used in 60% of hospitals, didn't reduce awareness during surgery as advertised.

Worst-Performing Health Care Funds
Ranked by returns for the week ending March 13

Fund

Ticker

Rating

Fund Type

1 Week Total Return

iShares DJ US Healthcare Providers Index Fund

IHF

B+

ETF

-10.53%

HealthShares Emerging Cancer ETF

HHJ

E+

ETF

-9.72%

Fidelity Select Medical Delivery Portfolio

FSHCX

C

Open-End

-9.23%

HealthShares Autoimmune-Inflammation ETF

HHA

U

ETF

-8.31%

HealthShares Ophthalmology ETF

HHZ

U

ETF

-7.92%

PowerShares Dynamic Healthcare Services Portfolio

PTJ

B-

ETF

-7.85%

HealthShares Orthopedic Repair ETF

HHP

U

ETF

-6.57%

Healthshares Infectious Disease ETF

HHG

U

ETF

-5.90%

ICON Healthcare Fund

ICHCX

D-

Open-End

-5.81%

HealthShares Composite ETF

HHQ

U

ETF

-5.63%

Source: Bloomberg.

For an explanation of our ratings,

click here

.

The best-performing list is dominated by biotechnology funds. The king of the hill is

ProFunds Biotechnology UltraSector ProFund

(BIPIX) - Get Report

at 4.13%. The fund is leveraged 150% to the Dow Jones U.S. Biotechnology Index, allocated to 73% biotechnology and 24% pharmaceuticals.

Both this fund and the third-place fund,

Biotech HOLDRs Trust

(BBH) - Get Report

, have large holdings of industry leaders

Amgen

(AMGN) - Get Report

,

Gilead

(GILD) - Get Report

,

Genentech

(DNA)

, and

Biogen Idec

(BIIB) - Get Report

.

Higher-than-expected costs at health-care companies may translate into positive revenue surprises for pharmaceutical and biotech businesses.

UltraShort Health Care ProShares

(RXD) - Get Report

gained 4.10% with 200% negative leverage to the Dow Jones U.S. Health Care Index. The fund bets against insurers and medical-delivery stocks such as Humana and WellPoint.

Index member

Immucor

(BLUD)

drained off 20% of stockholder value with the disclosure that the company's acquisition of BioArray may dilute earnings for 2008.

Best Performing Healthcare Funds
Ranked by returns for the week ending March 13

Fund

Ticker

Rating

Fund Type

1 Week Total Return

ProFunds Biotechnology UltraSector ProFund

BIPIX

C+

Open-End

4.13%

UltraShort Health Care ProShares

RXD

D

ETF

4.10%

Biotech HOLDRs Trust

BBH

C-

ETF

2.76%

Powershares Dynamic Pharmaceuticals Portfolio

PJP

D

ETF

1.08%

AMIDEX Cancer Innovations & Healthcare Mutual Fund

CNCRX

E-

Open-End

0.53%

First Trust AMEX Biotechnology Index Fund

FBT

D

ETF

0.42%

Healthshares European Drugs ETF

HRJ

U

ETF

0.37%

iShares Dow Jones US Medical Devices Index Fund

IHI

C

ETF

0.30%

SPDR S&P Biotech ETF

XBI

C+

ETF

-0.18%

Eaton Vance Worldwide Health Sciences Fund

EMHSX

D-

Open-End

-0.21%

Source: Bloomberg

For an explanation of our ratings,

click here

.

Stay healthy!

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.