Sector analyst Jim Farrish sees potential in the healthcare area, noting, "The best plays are in pharmaceuticals and biotech area."

In his SectorExchange.com service, the advisor assesses the impact of the upcoming election on the industry, as well as the top sector funds for investors seeking exposure to various healthcare sectors.

"The outlook for the healthcare sector has been mixed over the last 6-9 months. Part of this is the election and the concerns relative to which part is going to win the election in October.

"While the impact will not be immediate the market is trading in anticipation of the event. Remember markets trade looking forward not backwards.

"If the Democrats win the hope is for more research into new drugs. That outlook is pushing money towards the biotech sector. In addition big pharma is struggling due to the outlook of the Democratic party wanting cheaper healthcare for everyone. This is favoring the generics and thus stirring some growth in that sector. 

"Money is rotating due to the defensive sentiment being taken on by investors. This is driving money into the sector and pushing prices higher. I would look for this to continue with the outlook still negative on the economy over the second half of the year.

"The trend in the overall sector has been flat since bottoming in March. The real movement is in the subsectors such as biotechnology and drugs. The biotech sector broke above the resistance; the outlook remains optimistic and money flow continues to improve in the sector. 

"Pharmaceuticals broke the short term downtrend in place since January. While it is too early to make any longer term projections the short term is worth looking at to play. 

"The strategy here is pretty straight forward based on what is said above. The plays are in pharmaceuticals and biotech. The generics are likely to do best in this environment, but look for Merck, Johnson & Johnson and Schering Plough to go along for the ride. 

"Biotech is best played from a diversified view being an exchange traded fund or mutual fund. iShares NASDAQ Biotechnology (ASE: IBB) and ML Biotech HOLDRs (ASE: BBH) are the ETFs that best cover these sectors.

"I would look short term (0-6 months) initially and if the play develops look to hold longer term. As with any investment make sure you first measure the risk/reward relationship relative to your goals and second always use stops to protect the principle you invest.

"To play the overall healthcare sector, investors should use the iShares Dow Jones U.S. Health Care Sector Index Fund  (NYSE:: IYH).

"For a leveraged play, the Ultra Health Care ProShares (ASE: RXL) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of Dow Jone healthcare index. Note that the use of leverage magnifies the risk profile of this ETF.

"Conversely, for those who want a leveraged bet on the downside in the healthcare sector, we note that the UltraShort Health Care ProShares (ASE: RXD) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of Dow Jones healthcare index."