Medical Device ETF Soars Despite Political Issues

The Patient Protection and Affordable Care Act, or Obamacare as it is commonly referred to, does not make for easy reading. That is unless one enjoys thousands of pages of legal and political jargon. Buried deep in Obamacare is a provision that, in theory, should have been bad news for a couple of ETFs, but has not been. At least not yet.

Obamacare contains a punitive tax on medical device manufacturers, one that did not receive much attention in the time leading up to the debate on the legislation or even after the package was signed into law. The Battelle Technology Partnerships Practice called it “a stealth tax,” noting that punishing medical device makers would lead to tens of thousands of cut jobs and billions of dollar lost GDP for the U.S. [Medical Device ETFs Could be Hit by Obamacare Tax]

Medical device ETFs have, to this point, shaken off those fears. Year-to-date, the iShares U.S. Medical Devices ETF (NYSEArca: IHI) is up nearly 16%. IHI’s smaller rival, the SPDR S&P Health Care Equipment ETF (NYSEArca: XHE), has jumped 14%, indicating that both funds can be added to the list of Obamacare ETF winners when the logical assumption was that these ETFs would have been Obamacare losers. [An Obamcare ETF Winner]

Investors are not steering of IHI as the fund has attracted $72.5 million in new investments this year, according to Index Universe data.

IHI has been able to muster an impressive showing even after some of its marquee constituents, including Medtronic (NYSE: MDT) and St. Jude Medical (NYSE: STJ), announced layoffs related to the Obamacare medical device tax. Those stocks combine for 16.3% of IHI’s weight and Medtronic is the ETF’s largest holding with a weight of 11.2%.