Health Care ETFs: Drugs and Devices Holding Their Own

Sometimes, bad news can be good news. Take biotech bellwether Genentech (DNA).  It missed Wall Street's expectations for earnings, yet it raised its guidance for future profitability. The entire biotech segment rallied on the news.

And other times, good news can be... well, good news. Abbott's (ABT) 2nd quarter drug profits were 34% higher from Q2 2008 over Q2 2007, while Johnson & Johnson (JNJ) announced a record $16.5 billion in second quarter revenue. Both companies attribute the success to increasing overseas sales.

Clearly, "big pharma" is starting to attract "big" attention; in fact, the SPDR S&P Biotech Fund (XBI) is one of the few stock investments with 2008 gains.

Similarly, the iShares Medical Devices Fund (IHI) has been one of the few truly stabilizing forces in a stock world gone mad.  It has been one of my "faves" since mid-2007 as a long-term growth area with less regulation. And it's done a fine job holding up under tremendous economic uncertainty.

In contrast, broad-based health care funds like iShares Dow Jones Health (IYH) have only marginally protected against the bear. Double-digit 2008 losses are, at least in part, attributable to the uncertainty associated with government regulation of hospitals, HMO providers and so forth.

In truth, Biotech may be a bit too volatile for most investors. The run-up since the March lows may be difficult to replicate. And the political risk of government oversight may make the iShares Dow Jones Health somewhat anemic.

Meanwhile, the iShares Medical Devices Fund may just be exactly what the doctor ordered. Throughout the extreme volatility and downward pressure of 2008, medical device makers have been hanging in there.

Consider the players. Pacemaker and defibrillator producer St. Jude Medical (STJ) announced better than expected profits as well as a 20% Q2 08-to-Q2-07 revenue jump. Intuitive Surgical (ISRG) is making inroads into China. And Medtronic (MDT) recently received approval for its insertable cardiac monitor's usage in Japan.

Granted, stock market volatility has been nearly unbearable. And we may have been long overdue for across-the-board gains. That said, the iShares Medical Devices Fund may be safer for your financial future than cash or the heralded S&P 500.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.