NEW YORK (AP) Health care stocks have started off the year on a tear. <\/p>\n
The industry group that includes health care providers, drugmakers and biotechnology companies has advanced 7.3 percent this year, making it the second-best in the Standard and Poors 500 index, trailing only energy companies. Even drugmakers, traditionally considered a safe-haven play, are outperforming the market. <\/p>\n
The rally has solid foundations, but not all companies will benefit equally from the influx of cash. Also, the wide range of stocks in the sector offer investors vastly differing risk and return dynamics. <\/p>\n
U.S. health care spending is projected to climb at a faster pace than economic growth in coming years as the population ages and President Barack Obamas Affordable Care Act gives millions of Americans greater access to care. <\/p>\n
The Centers for Medicare and Medicaid Services projects that total health care spending will rise 70 percent over last years estimated level of $2.8 trillion to $4.8 trillion by 2021. Thats almost 20 percent of U.S. gross domestic product. <\/p>\n
Theres just a lot more money flowing into health care and were seeing the markets react accordingly, says Derek Taner, a portfolio manager at Invesco. <\/p>\n
President Obamas re-election in November gave the sector a boost by removing the uncertainty surrounding the implementation of the Affordable Care Act. Republican candidate Mitt Romney had said that he would overturn the act if elected. <\/p>\n
The biggest beneficiaries of the act will likely be hospital companies, which have the potential to increase their earnings significantly, says Taner, who manages Invescos Global Health Care fund. <\/p>\n
So-called managed-care companies should also benefit from the increase in spending, though they also face higher taxes and restrictions on how they can price their coverage, so the law will be challenging to them too. <\/p>\n
HCA Holdings Inc., a bellwether for the hospital industry, has gained 25 percent so far this year. Tenet Healthcare Corp., a Dallas-based operator of acute care hospitals, has advanced 20 percent. <\/p>\n
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