With multiple holdings, medical device ETFs provide immediate diversification to buyers, an important feature in the medical device market.
Exchange-traded funds (ETFs) are a popular investment strategy, and generally contain a variety of publicly traded companies under one stock, often with a focus on a specific sector.
Depending on the ETF, investors may be able to track up-and-coming companies, get exposure to top firms or a mix of both. Aside from stocks, some ETFs also track commodities or bonds.
To help investors make decisions when it comes to medical device ETFs, here the Investing News Network provides a brief breakdown of what ETFs are and a look at which medical device ETFs to buy.
What is an exchange-traded fund?
An ETF is similar to a mutual fund and trades like any other regular stock. ETFs are appealing because they give investors the ability to hone in on a specific market area without investing in individual stocks.
Put simply, ETFs centered on stocks reduce the risk of investing by providing a larger pool of companies — instead of going all in for one company, ETFs lets investors pick an area that interests them and suffer less financially if one company under the ETF’s umbrella underperforms. In this way, ETFs allow investors to enter the market confidently and enjoy long-term capital gains.
Like many areas of the life science space, the medical device sector can be volatile, making ETFs a particularly appealing type of healthcare ETF.
For example, if a company in a medical device ETF fails a clinical trial or receives negative feedback from the US Food and Drug Administration (FDA), those who have invested in the ETF will largely be protected from any share price drop the medical device maker might have.
On the other hand, if a company in a medical device ETF sees a major gain, that increase will also be muted for ETF investors. That is why some investment professionals prefer to take their chances by adding individual stocks to their portfolios.
Medical device exchange-traded funds to consider
1. iShares US Medical Devices ETF (ARCA:IHI)
The iShares US Medical Devices ETF was launched in 2006 and tracked 60 holdings as of July 6, 2020. This iShares ETF’s top three constituents by weight are:
- Abbott Laboratories (NYSE:ABT): Abbott Laboratories’ medical devices are geared towards vascular disease, diabetes and vision care.
- Thermo Fisher Scientific (NYSE:TMO): The company’s devices are made primarily for experts such as lab workers. Thermo Fisher Scientific has products in a variety of areas, including cellular analysis, synthetic biology and molecular biology.
- Medtronic (NYSE:MDT): Medtronic’s devices aim to relieve pain and restore health. The company’s areas of focus include: diabetes, cardiac and vascular ailments, minimally invasive therapies and restorative therapies.
2. SPDR S&P Health Care Equipment ETF (ARCA:XHE)
Formed on January 26, 2011, the SPDR S&P Health Care Equipment ETF tracked 72 holdings as of July 6, 2020. Some of the top holdings in this fund’s portfolio are:
- STAAR Surgical (NASDAQ:STAA): For more than 30 years, STAAR Surgical has developed and manufactured implantable lenses and companion delivery systems use in ophthalmic surgery.
- Genmark Diagnostics (NASDAQ:GNMK): Genmark Diagnostics’ ePlex COVID-19 test, based on its ePlex diagnostic system, recently received emergency use authorization from the FDA. The biotech company’s test consists of a nasopharyngeal swab and can deliver results within two hours.
- Meridian Bioscience (NASDAQ:VIVO): Founded in 1976, Meridian Bioscience is an international medical device company that produces and distributes a wide range of diagnostic test kits.
This is an updated version of an article originally published by the Investing News Network in 2016.
Don’t forget to follow us @INN_LifeScience for real-time news updates.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.