Affordable Care Act Turns 5: Healthcare Stocks Still Soaring

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The Affordable Care Act –also known as ObamaCare — was signed into law five years ago, and even by the lofty standards of the current bull market, healthcare stocks have put up tremendous gains ever since.

Affordable Care Act Turns 5: Healthcare Stocks Still SoaringBut they sure didn’t start that way.

The market hates uncertainty. After all, it’s forward-looking. Stocks are priced on expectations of what will happen in the future. Things like profit, revenue, costs and interest rates are only educated guesses when the market assigns a price to equity securities. If the future is too uncertain to make estimates with any degree of confidence, the market is going to tell you.

That explains why healthcare stocks didn’t do anything special for the first three years of the Affordable Care Act becoming law — the market didn’t know if the Supreme Court would strike it down.

But once the nation’s highest court gave ObamaCare a green light in mid-2012, healthcare stocks began their market-crushing run.

Over the last five years since the Affordable Care Act was signed into law, healthcare stocks — as measured by the largest exchange-traded funds — have been phenomenal. The Health Care Select Sector SPDR Fund (NYSEARCA:XLV) is up 131%, and the Vanguard Health Care ETF (NYSEARCA:VHT) is up 139%.

The market saw right away that this great expansion of health insurance would create millions of new customers for every sector of the healthcare industry. And make no mistake: the Affordable Care Act made the difference for these stocks.

The Affordable Care Act Plays Favorites

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Just look at foreign healthcare stocks, which don’t benefit from the expansion of health insurance. The almost exactly matched the performance of the broader market since ObamaCare became law. The SPDR S&P International Health Care Sector ETF (NYSEARCA:IRY) has almost exactly matched the performance of the broader market over the last five years. (See the embedded chart, courtesy of Yahoo Finance.)

Of course some sectors of the healthcare industry have performed much better than others. The SPDR S&P Health Care Services ETF (NYSEARCA:XHS) is heavy with health insurance stocks. It’s outperformed even the red-hot Vanguard Health Care ETF by about 6 percentage points.

The medical devices and pharmaceuticals sectors have likewise left the market behind. The iShares U.S. Medical Devices ETF (NYSEARCA:IHI) gained 106% over the last five years. The iShares U.S. Pharmaceuticals ETF (NYSEARCA:IHE) is up almost 200%. Biotech has been even more impressive. The iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) has almost quadrupled since President Barack Obama signed the Affordable Care Act.

It’s safe to say that healthcare stocks — traditionally a defensive sector — wouldn’t be generating these type of market-beating returns absent ObamaCare. And since the Affordable Care Act continues to expand, healthcare stocks are still leading the market in 2015.

At some point all of the benefits to healthcare stocks’ bottom line will have been priced into share prices. Hey, this outperformance can’t go on forever.

But for now, on the five-year anniversary of the Affordable Care Act, healthcare stocks are still going strong.

As of this writing, Dan Burrows didn’t hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/affordable-care-act-healthcare-stocks/.

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