Through their multiple holdings, ETFs provide immediate diversification to buyers. That’s particularly important in the medical device market.
Exchange-traded funds (ETFs) are a popular investment tool, 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 track also track commodities or bonds.
To help investors make decisions when it comes to which medical device ., here the News Network provides a brief breakdown of what ETFs are and a look at the options for
What is an exchange-traded fund?
ETFs are similar to mutual funds and trade like any other regular stock. They are appealing because they give investors the ability to hone in on a specific area in the market 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 a company 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 particularly appealing.
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 be protected from any share price drop the company 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 investors prefer to take their chances by adding individual stocks to their portfolio.
Medical device exchange-traded funds to consider
iShares US Medical Devices ETF (ARCA:IHI)
The iShares US Medical Device ETF was launched in 2006 and tracked 56 holdings as of June 7, 2019. Its top three constituents by weight are:
- Abbott Laboratories (NYSE:ABT): Abbott’s medical devices are geared towards vascular disease, diabetes and vision care. The company holds a 13.89 percent weighting in the fund.
- Medtronic (NYSE:MDT): Medtronic’s devices aim to relieve pain and restore health. The firm’s areas of focus include: diabetes, cardiac and vascular, minimally invasive therapies and restorative therapies. Medtronic’s weighting on the index is 12.76 percent.
- Thermo Fisher Scientific (NYSE:TMO): The company’s devices are made primarily for experts such as lab workers. It has products in a variety of areas, including cellular analysis, synthetic biology and molecular biology.
SPDR S&P Health Care Equipment ETF (ARCA:XHE)
Formed on January 26, 2011, the SPDR S&P Health Care Equipment ETF tracks 67 holdings, all of which are fairly evenly weighted. Some of the top holdings in this fund’s portfolio are:
- Nevro (NYSE:NVRO): Weighted at 2.37 percent, Nevro develops medical devices that help patients with chronic back and leg pain.
- Align Technology (NASDAQ:ALGN): Align Technology developed the orthodontic Invisalign system and the intraoral scanner iTero. The company’s medical devices are intended for dental professionals. Align Technology holds a 2.28 percent weight in the index.
- IDEXX Laboratories (NASDAQ:IDXX): IDEXX Laboratories develops products for pet healthcare, including diagnostic and information technology-based products. IDEXX Laboratories holds a 2.25 percent weight in this ETF.
This article is an updated version of an article originally published on the Investing News Network in 2016.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.