The Xchange Blog

The CURE for the Health Care Trade?

Can traders breathe easy?

Ever since it was passed in 2010, one of the most contested U.S. domestic policy debates was over the fate of the Affordable Care Act (ACA). That debate only intensified during the 2016 election. For their part, then candidate Trump and the congressional members of the GOP were emphatic about their intention to repeal “Obamacare” one way or another. Democrats made clear their desire to maintain the law, patching it with legislation intended to repair some of the ACA’s flaws like rising premiums and shrinking provider options within the ACA network.

In the run up to the election, health care stocks declined due to investor fear of what candidate Hillary Clinton, who was at that point heavily favored to win, might mean for the sector. Once the results revealed America went against the political analysts, healthcare, along with the rest of the market, went into overdrive; the Health Care Select Sector Index (INDEXSP:IXVTR) added about five percent in the days immediately following the election.

One year after the 2016 election of Trump and a majority of Republican congressional candidates, the ACA remains the law of the land, despite continued efforts by the Republican-controlled executive and legislative branches to replace, repeal, or undermine the health care framework.

And healthcare stocks? Taking a look at the YTD chart on the Health Care Select Sector Index (the Index), along with the Direxion Daily Healthcare Bull 3X Shares ETF (NYSE:CURE) that tracks the Index, things seem to have continued on-pace with the rest of the market rally, barring a few hiccups in the spring and late summer when Republican “repeal and replace” legislation was introduced or struggled to pass.


Data Range: 1/1/2017 – 11/30/2017. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized.

 

Healthcare and health insurance stocks are still climbing at a clip despite uncertainty. As long as the promise of healthcare reform is on the horizon, things should be smooth sailing, right?

Well, not exactly. First, it’s important to get some context for the growth shown above. While the Index did gain about 22% in the 52 weeks since the election, the Index also grew about 26% between November 2013 and November 2014; the year the ACA was enacted. In the years since, the Index fell into a range of about $50 above and below the $700 level, largely matching moves throughout the rest of the market before it began climbing in November 2016.

Revenue for UnitedHealth Group Inc (NYSE:UNH), one of the major healthcare providers included in the index, also bears out the relative success insurance companies experienced under the ACA. UnitedHealth’s total revenue increased about 6.5% in 2014 over 2013, then 20.4 percent from 2014 to 2015 and more than 17.6% from 2015 to 2016. In fiscal year 2017, UnitedHealth projects total revenue of about $199 billion, about an 8 percent increase over 2016.

While these signs point to a relative growth stability in healthcare, the future is far from certain given actions undertaken by President Trump after congressional Republicans failed to pass a viable alternative. In October 2017, President Trump officially declared he would end subsidy payments to ACA healthcare providers that kept premiums on consumers low. While the long-term status of these payments weren’t set in stone as it was, their early discontinuation has thrown even more uncertainty into the boardrooms of companies like UnitedHealth than the repeated promises from Republicans to get rid of the ACA entirely.

As a result of years of GOP threats to eradicate the ACA and with President Trump’s recent executive order, insurance companies have gradually priced-in the difference of those subsidies into the premiums for consumers. While this might signal a neutral move for companies’ bottom line, it might also portend a drop-off in top-line growth as consumers opt-out of healthcare altogether.

For healthcare investors, the only option right now is to keep close tabs on the health of their own portfolio and be on the lookout for any adverse symptoms.

Related Leveraged ETFs:

 


Performance (as of 9/30/2017)

Ticker Name   1-Mo % 3-Mo % YTD 1-Yr % 3-Yr % 5-Yr % S/I % Inception Expense Ratio (Gross/Net) %
CURE Direxion Daily Healthcare Bull 3X Shares NAV 2.29 9.11 65.03 42.50 20.76 46.90 42.87 6/15/2011 1.11 /1.09*
Market Price 2.43 9.06 65.00 42.65 20.76 47.00 42.84

* The Net Expense Ratio includes management fees, other operating expenses and Acquired Fund Fees and Expenses. If Acquired Fund Fees and Expenses were excluded, the Net Expense Ratio would be 0.95%. The Fund’s Adviser, Rafferty Asset Management, LLC (“Rafferty”) has entered into an Operating Expense Limitation Agreement with the Fund, under which Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse the Fund for Other Expenses through September 1, 2018, to the extent that the Fund’s Total Annual Fund Operating Expenses exceed 0.95% of the Fund’s daily net assets other than the following: taxes, swap financing and related costs, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions and extraordinary expenses. If these expenses were included, the expense ratio would be higher.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance please visit the funds website at direxioninvestments.com.

Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxioninvestments.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment. The Direxion Shares ETFs are not designed to track their respective underlying indices over a period of time longer than one day.

Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause its price to fluctuate over time. The Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of its underlying index for periods other than a single day. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Health Care Sector, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

Health Care Select Sector Index (IXVTR) – The index is provided by Standard & Poor’s and includes domestic companies from the healthcare sector, which includes the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology. One cannot directly invest in an index.