Health care is still the top-performing sector in the S&P 500 this year. In fact, it is the only one still in the green year-to-date and industry groups such as medical devices are a big reason why.
Or were a big reason why. The iShares U.S. Medical Devices ETF (NYSEArca: IHI), the largest dedicated medical devices exchange traded fund, was a leader earlier this year as the health care sector surged, but with the broader market recently weakening, IHI has stumbled. The ETF has fallen 9.3% over the past week and is sporting a year-to-date gain of just 1.4%.
Market analysts argue that medical devices and equipment manufacturers are a good healthcare bet and remain well positioned for global growth, reports Constance Gustke for CNBC.
Specifically, observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth.
Emerging countries have a large, aging demographic and workers are seeing incomes rise, which could equate to a 15% revenue growth for medical technology companies from those countries, Gregory Chodaczek, a senior research analyst at Sterne Agee, said.
For instance, McKinsey & Company calculated that China’s healthcare spending could triple between 2011 and 2020. [Growth for Medical Devices ETFs]
Those bullish fundamentals mean investors can use the recent pullback in valuation among some medical device stocks to get involved with the industry and funds like IHI.
Stephens analyst Chris Cooley “notes that many names in his coverage universe are near their peak valuation points. However, after today’s selloff they aren’t as pricey, and the good news is that higher multiples are backed by favorable fundamentals in the industry that point to higher earnings and sales in 2016,” reports Ben Levisohn for Barron’s.
Medical equipment and hospital stocks recently experienced a decent spike after the Supreme Court ruled in favor of the Affordable Care Act. With the Obamacare subsidies intact, the sector will continue to benefit from a growing client base. [Emergency Room ETF Likes Supreme Court Ruling on Obamacare]
The $769.2 million holds 50 stocks, but its top five holdings combine for approximately 40% of the ETF’s weight.
iShares U.S. Medical Devices ETF
