Through several years of an epic bull market in medical devices the iShares U.S. Medical Devices ETF (NYSEArca: IHI), the largest dedicated medical devices exchange traded fund, stood tall, soaring more than 109% over the past five years.
IHI was a leader earlier this year as the health care sector surged, but IHI was not immune to the tumble experienced by the health care sector during the summer. Industry 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.
Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled. [Healthcare ETFs: Specialized Drugs in Greater Demand]
“The United States has one of the largest markets for medical devices, and it is expected to continue to demonstrate significant growth due to the aging population and high demand for precise medical equipment. The medical device market is highly fragmented and has over 6,500 companies in the U.S. that are mostly small- and medium-sized firms. The medical devices sector consists of numerous subsectors such as electromedical equipment, irradiation apparatuses, and various surgical and medical instruments,” according to Investopedia.
IHI has also seen plenty of mergers and acquisitions activity among its components in recent years, but that trend within the health care sector has come under scrutiny as the U.S. Treasury Department looks to crack down on U.S. firms acquiring rivals with foreign domiciles so that they can avoid paying U.S. taxes. More recently, inversions have occurred after large U.S. companies merged with smaller foreign firms. The U.S. company would reincorporate in a tax-friendlier country, like Ireland, while maintaining much of their core operations in the U.S. [Inversion Crackdown Affects Health Care ETFs]
“Investors in IHI are exposed to risks and rewards that come from a single sector. Because a large share of medical devices companies comes from the U.S. government, any changes in the regulatory framework can negatively affect the performance of IHI,” adds Investopedia.
iShares U.S. Medical Devices ETF
