Managed Care’s 600% Rally Defies a Decade of Turmoil in Health-Care Market

(Bloomberg) -- You wouldn’t know it from looking at this year’s chart, but health insurers have been the industry’s most successful trade over the past decade.

The S&P 500 Managed Care Index, which houses five of America’s largest payers of medical services, has surged more than 600% since late 2009. The benchmark outperformed the S&P 500 by more than threefold over that time. The next best performance in health care is life sciences, as the S&P 500 Life Sciences Tools & Services Industry Index is up about 400% over the past 10 years, according to data compiled by Bloomberg.

The managed-care gauge’s best performer this decade has been Centene Corp., which soared 1075%, followed by UnitedHealth Group Inc. The stock, which has a 63% weight in benchmark, has rallied 868% during the same period.

Several factors have bolstered the fortunes of health insurance stocks. The Affordable Care Act took full effect in late 2013, opening access to new markets such as Medicaid expansion and the public exchanges. After several rocky years, insurers finally found a way to make money in the ACA marketplace.

Another big market has been Medicare Advantage, a private version of the U.S. government program for the elderly. As the population ages, more retirees are opting for such plans over traditional Medicare.

While insurer stocks were volatile earlier this year, they’ve staged a rapid comeback in recent months. The S&P 500 Managed Care Index has gained 35% since late September, on track for its largest quarterly gain since Bloomberg started tracking the data in 1994. The benchmark is up 19% for the year, reversing losses as steep as 13% back in April.

The sector is facing a tough outlook next year with uncertainty looming ahead of the U.S. presidential election. Yet despite the potential turmoil, Goldman analyst Stephen Tanal said managed-care stocks can still “work.” His analysis this week found that sell-offs were typically followed by outperformance in the last six elections excluding 2008. The S&P Managed Care Index rose an average 29% in election years, outperforming the broader market, he said.

--With assistance from John Tozzi.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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