Will Healthcare Catch Cold?

The S&P® Health Care Select Sector Index rose over 1% for the month of November, despite volatility in the index. This advances the index’s year to date performance to an impressive 8.20% as of 11/30/11, despite the S&P 500 Index declining approximately 1% for the same timeframe. The sector’s natural defensive nature has made owning most healthcare related equities and ETFs a favorable addition to many investor’s portfolios, especially as a means of added diversification.

In mid November, the Supreme Court agreed to determine whether the health care reform bill championed by President Obama is constitutional. Five and a half hours of oral debate have been scheduled for the February/March timeframe. The court has agreed to hear two major arguments: 1) Is the law’s key provision constitutional? 2) Should the entire law be discarded?
These deliberations and their outcomes are likely to contribute some volatility to the sector, potentially presenting trading opportunities for the active investor.

For investors with a longer term perspective, some analysts believe that despite the modest gains year to date in the Health Care sector, there is still opportunity for continued longer-term growth. Morningstar has noted that valuations for pharmaceuticals are lower than their historical averages. With price/earnings ratios currently around 10, they are trading lower than their typical mid teens ratios observed over the last decade. Morningstar analyst Damien Conover believes that multiples may not return to their mid teen levels, however, an advance to the 12.5 range is more likely.

Will the Health Care sector continue its hearty advance into 2012 or is its performance susceptible to a potentially contagious political landscape?

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P/E Ratio -A valuation ratio of a company's current share price compared to its per-share earnings.

Standard & Poor's 500 Index (S&P 500) - An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology. The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the Standard & Poor's 500® Index ("S&P 500®"). Nine Select Sector Indexes, including the Health Care Select Sector Index, divide the companies that make up the S&P 500 Index.

Volatility - A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security

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