Author Topic: Healthcare Index Funds?  (Read 1161 times)

PBandJelli

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Healthcare Index Funds?
« on: February 25, 2018, 03:26:12 PM »
Hi All:

I am a relatively new follower on the threads.  I understand the guidance is to buy S&P 500 index funds, and total market index funds.  However, as I start to think about FIRE, the biggest concern I have (just like so many of you) is related to funding personal healthcare.  All of this got me thinking: if demand for healthcare is only projected to increase, shouldn't I think about investing in a healthcare index, like FSMEX (related to tech) or VHCIX?

Any thoughts about this?  Or anyone else who has done some research on healthcare index funds?

Brother Esau

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Re: Healthcare Index Funds?
« Reply #1 on: February 25, 2018, 03:42:54 PM »
Yeah, I had the same thought a couple years ago and added 2 Health Care specific funds to my portfolio. They have done well, so far.

Telecaster

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Re: Healthcare Index Funds?
« Reply #2 on: February 25, 2018, 04:09:36 PM »
<looks over shoulder>

Well, yes.  It seems reasonable to me that health care, for demographic reasons alone, will continue to grow faster than the rest of the economy.  Despite the current political climate, I think that clearly the trends is towards covering more people, not less.  So some years ago I allocated a percentage of my portfolio to healthcare.  I can't remember the symbol, but it was the Fidelity equivalent of VHCIX. 

Brother Esau

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Re: Healthcare Index Funds?
« Reply #3 on: February 25, 2018, 04:23:27 PM »
<looks over shoulder>
Fidelity equivalent of VHCIX.

FSPHX possibly?

Exflyboy

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Re: Healthcare Index Funds?
« Reply #4 on: February 25, 2018, 05:22:01 PM »
I know it feels like "stealing the baby's candy" but I agree with you.

The only reason I don't do this is because political pressure is rising to "do something" about the cost of HC. It "probably" won't happen before the 2021 primaries though.

The US economy is about 15% HC so I assume the return of the S&P500 is similarly made up. As this figure is way more than we spend on HC I guess I am happy with what the HC industry is giving me.. Even though I feel sick about the US HC system as a whole.

VoteCthulu

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Re: Healthcare Index Funds?
« Reply #5 on: March 01, 2018, 10:39:19 AM »
I would rather stay diversified in the total index funds, even if I think a sector is ripe for growth. Ten years ago I thought oil could only go up, and then it crashed hard. I don't trust my ability to foresee and react correctly to sector disruptions, so instead I choose to stay in the broad indices, although YMMV.

NathanP

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Re: Healthcare Index Funds?
« Reply #6 on: March 01, 2018, 10:49:31 AM »
I think there are too many risks to choose the healthcare sector over a Total Market Fund.

Risks:
  • Government moving to negotiated rates for prescriptions
  • Liability for opiod useage
  • Nationalization - medicare for all
  • Large employers switching to restrictive, managed care networks to reduce costs

Abe

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Re: Healthcare Index Funds?
« Reply #7 on: March 01, 2018, 09:11:14 PM »
Healthcare cost increases have slowed down, and I do not think that sector will out-perform the overall economy for several reasons. These topics are waaay too complicated to discuss without spending hours, but brief points of discussion for why costs are stabilizing somewhat:

1. Insurers are starting to move away from pay-for-service to pay-for-performance, which are specifically designed to limit costs while discouraging excess spending.  The biggest example is the MIPS program by Medicare, which is supposed to start this year.

2. Insurance companies are consolidating while driving tougher bargains on reimbursements for services and medications. This is a big one, and will continue to drive down profits for hospitals and indirectly for pharmaceutical companies.

3. Pharmaceutical companies have picked the low-hanging fruit for profitable meds. Research costs have increased exponentially while profits remain fairly stagnant

4. Insurance companies' ability to increase profits is primarily driven by jacking up premiums while denying claims, and both options are limited by the ACA.

5. Consumers are getting smarter about prioritizing healthcare costs, and avoiding tests that would've been routine years ago (or at least reducing the frequencies).

I left out physician groups because few of these are public companies.

Of course, Trump and the GOP can blow all of this out of the water and who knows what'll happen. Or not. <Shrug!>

I am not directly invested in healthcare-sector funds due to conflict of interest regulations (I'm a surgeon), but even then would not consider them except for a small fraction of my investments for the above reasons.

harvestbook

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Re: Healthcare Index Funds?
« Reply #8 on: March 02, 2018, 07:12:00 AM »
Maybe in a world where one tweet couldn't crush your index by 10 percent in a week.