M&A Activity Stokes Inflows To Healthcare Providers ETFs
Summary Increased industry consolidation could help support healthcare provider ETFs. Healthcare services ETFs attracting greater investment demand. The healthcare sector is booming on a wave of new clients as more enroll into the ACA. By Todd Shriber & Tom Lydon Buoyed by rumors that the health insurance industry is poised for consolidation on a grand scale, the iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ) has been steadily rising and raking in new assets. As of June 23, IHF added $247 million in new assets this year, the ETF’s biggest first-half inflows since it came to market in 2006, reports Joseph Ciolli for Bloomberg . Up 19.4% year-to-date, it is now home to $987.4 million in assets under management. For weeks, investors and the financial media have been expecting a wave of consolidation that could see marriages among some of IHF’s largest holdings. Earlier this week, Cigna (NYSE: CI ) rejected a $47 billion takeover offer from Anthem (NYSE: ANTM ). Anthem and Cigna are IHF’s fourth- and fifth-largest holdings, respectively, combining for over 13% of the ETF’s weight. Dow component UnitedHealth (NYSE: UNH ) has made overtures for rival Aetna (NYSE: AET ) while Aetna has been reportedly eying Humana (NYSE: HUM ), according to the Wall Street Journal . UnitedHealth, Aetna and Humana combine for about 23% of IHF’s weight. “Fueling the potential consolidation is the Obama administration’s 2010 health law, which put tougher rules on the industry, demanding more covered services, better care and a ceiling on profits. Companies are racing to capture the more than 20 million customers who will buy coverage under the law,” according to Bloomberg. Inflows to IHF are accelerating, including $138.1 million in the current quarter. In March 2014, the ETF had just $400 million in assets under management. Investors are also taking note of IHF’s equal-weight rival, the SPDR S&P Health Care Services ETF (NYSEARCA: XHS ) . XHS now has nearly $191 million in assets, $25 million of which have arrived this quarter. The ETF has added $54.1 million in new assets this year. Cigna, Aetna, Anthem, UnitedHealth and Humana combine for 10% of XHS’s weight. The ETF is up 15.8% this year. IHF and XHS are not strangers to healthcare mergers and acquisitions. Earlier this year, UnitedHealth agreed to acquire Catamaran (NASDAQ: CTRX ) for $12.8 billion in cash. In 2009, Express Scripts (NASDAQ: ESRX ) spent $4.7 billion to acquire WellPoint and followed up that deal with the $29 billion acquisition of Medco in 2012. Last month, shares of Quest Diagnostics (NYSE: DGX ), the provider of healthcare diagnostic testing services, after it was rumored that company could be a takeover target as well though chatter to that effect has since ebbed. Quest Diagnostics is 2.6% of IHF and 2% of XHS. iShares U.S. Healthcare Providers ETF (click to enlarge) Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.