What is an exchange-traded fund?

ETFs are similar to mutual funds and trade on exchanges like any other standard stock. ETFs are appealing because they give investors the ability to hone in on a specific market area without investing in individual companies.

Put simply, ETFs reduce the risk of investing by providing access to 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 hopefully 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, ETF investors 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 ETFs to consider

Investors keen on medical device ETFs have only two choices, according toETFdb.com. Here’s a brief look at those ETFs.