Medtronic Could be a Near-Term Problem for Med Device ETF

In what has been a stellar year for health care exchange traded funds, the iShares U.S. Medical Devices ETF (NYSEArca: IHI) is one of the standouts.

Not only is IHI up 32% this year, but the $501.2 million ETF hit an all-time high last Friday. IHI has hauled in almost $117 million, or 23% of its current assets under management total, in new assets this year.

In any ordinary, those superlatives would be impressive on their own. Combined, they are even more impressive. The fact that all are applicable to IHI in 2013 is even more surprising because a stealth tax on medical device makers hidden in the Afford Care Act, or Obamacare, was believed to be a negative catalyst for IHI and its 41 holdings heading into 2013. [Obamacare is Unhealthy For Medical Device ETFs]

Clearly, the Obamacare medical device tax has not meant the undoing of IHI, but the ETF could face a near-term problem attributable to its largest holding, Medtronic (NYSE: MDT), which accounts for almost 10.3% of the fund’s weight.

Last Friday, Medtronic announced “that the U.S. Food and Drug Administration (FDA) has classified the company’s recently initiated voluntary field action related to certain guidewires as a Class I recall,” according to a statement issued by the company. 

Given the time-stamp on the release as posted on Reuters, (7:01 PM Eastern), it appears it was issued after the close of U.S. markets and late enough that there was little action in Medtronic shares in Friday’s after-hours session.