Profit Off the Growth and Reform of Health Care

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some health-care companies to your portfolio, the PowerShares Dynamic Healthcare ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.65 %. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed well, beating the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why health care?
For starters, our planet's growing, and an aging population will keep demand rising for health-care products and services. On top of that, Obamacare is likely to usher more Americans into health coverage, delivering more consumers to companies treating them.

More than a handful of health-care companies had strong performances over the past year. Gilead , for example, soared 98%. Known for its HIV treatments, it has been expanding its scope, most notably into Hepatitis treatments. A Hep C treatment recently yielded strong results in clinical testing, boosting the stock, and results so far for HIV treatments are also encouraging. The company recently announced plans to buy cancer specialist YM Biosciences , which is developing a treatment for myelofibrosis.

Health-care information services specialist Cerner surged 37%, and has averaged 19% growth annually over the past two decades. The company recently reported strong earnings, due, in part, to consolidation among its customers, as well as global growth. President Obama's health-care reforms include a mandate to move much of medical recordkeeping onto electronic formats, which also bodes well for Cerner. The main knock against it now may be its valuation - though that hasn't stopped the company from announcing a modest share buyback plan . (Buybacks aren't wise if a stock is overvalued.) Meanwhile, Cerner has bought behavioral health-care technology specialist Anasazi Software.

Eli Lilly gained 29% over the past year. The company received FDA approval a few months ago for its radioactive agent Amyvid, used to help detect Alzheimer's, and treatments for lung cancer and diabetes 2 have also been approved . Like most big pharma companies, it faces patent expiration challenges - but it's also big enough to buy some smaller companies and their promising pipelines. Some don't see the company as exciting right now, but its future may be bright. In recent news, Lilly stopped a trial of its rheumatoid arthritis drug tabalumab due to lack of efficacy, but is expanding its phase 3 trials for its Alzheimer's drug, solanezemab.

Abbott Labs advanced 25%, and will soon be splitting its pharmaceutical business from its nutrition and devices businesses, which some expect will unlock more value for investors. The new pharmaceutical entity will be AbbVie, starting out with about $18 billion in annual revenue, but also a lot of debt. It will also keep about 75% of the dividend obligation. Some worry that the company is too dependent on its $8 billion drug Humira. Abbott seems to be in better shape than its peers regarding patent expirations, and its operations in fast-growing emerging markets are also promising.

The big picture
Demand for health care isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

While you can certainly make huge gains in biotech and pharmaceuticals, the best investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Profit Off the Growth and Reform of Health Care originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Gilead Sciences. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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