Scott Brown’s Upset Senate Election & Healthcare ETFs

by on January 20, 2010 | ETFs Mentioned:

Highlighting the increasingly fluid political landscape in Washington, a relatively unknown Republican state senator claimed the Massachusetts Senate seat previously held by Ted Kennedy on Tuesday. Scott Brown’s upset victory over Martha Coakley, the state’s attorney general who had been a heavy favorite just one month ago, not only humbled Democrats already expecting a handful of difficult races in 2010 but also imperiled the health care overhaul that seemed to be on the verge of becoming law.

Brown’s election breaks the 60 seat filibuster-proof majority held by Democrats in the Senate, as the Republican will replace Paul Kirk, a democrat appointed to the seat until a special election could be completed. Once it became clear that Brown would pull off the upset, speculation turned to the health care issue. Many opposed to the legislation worried that democrats would attempt to delay Brown’s swearing in, pushing through the bill while Kirk still held his seat. But that outcome seemed increasingly unlikely late Tuesday. Virginia Senator James Webb, a supporter of the health care legislation, called for the Senate to take no votes until Brown could take his seat in Congress.

Some Democrats were proposing pushing the bill through the final House vote required to send it to the president. But Tuesday’s stunning defeat seems likely to push the issue to the back burner temporarily, as Democrats regroup and attempt to recalibrate a plan get the bill passed. Brown’s victory could set off a fresh wave of deal-making, and perhaps force Democrats to compromise on some of the bill’s more controversial points.

Health Care ETFs In Focus

As the health care debate has unfolded in Washington over the last six months, health care ETFs have moved roughly in lock step with the broad market, as investors have struggled to gauge both the likelihood and ultimate impact of comprehensive overhaul on the industry.

Brown’s election certainly hasn’t killed the legislation. Democrats are said to be considering the use of special procedural rules that would eliminate the need for 60 votes in the Senate, although such a strategy would likely produce a scaled-back version of the original proposal. So with the outlook on health care reform still cloudy, ETFs focusing on this sector will continue to be in focus in coming weeks. Although the fate of comprehensive reform will be in the headlines regularly, expect health care funds to show surprisingly little volatility, moving roughly in line with the market until a clear path emerges.

  • Health Care Select Sector SPDR (XLV): This broad-based fund includes companies operating in every corner of the health care industry, including pharmaceuticals, health care providers, health care technology and equipment companies, and biotechnology firms.


  • Vanguard Health Care ETF (VHT): Vanguard’s health care ETF provides another way to gain diversified exposure to the industry, investing in companies operating throughout the sector.


  • iShares Dow Jones U.S. Medical Devices Index Fund (IHI): Don Dion recently noted that the medical devices ETF could be impacted by the unfolding political developments, as the “cost-cutting measures in the health care bill could impact the prices of frequently used items.” Since a significant portion of health care devices are currently paid for by the government, this area seems ripe for reform.


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Disclosure: No position at time of writing.