Widely documented have been the healthcare sector’s struggles this year against the backdrop of slumping biotechnology stocks and election year headwinds. However, there have pockets of strength in the group, including medical device makers and exchange traded funds such as the iShares U.S. Medical Devices ETF (NYSEArca: IHI).
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.
Last week, IHI, the largest dedicated medical devices exchange traded fund, was seen making all-time highs, one of a small number of ETFs to accomplish that feat during a lethargic week for stocks.
“IHI has a Relative Strength Rating of 75, which means it’s outperformed 75% of other stocks and ETFs in the IBD database over the last 12 months. An Accumulation/Distribution Rating of B+ points to healthy institutional demand for the shares,” according to Investor’s Business Daily. “The ETF saw $92.3 million net inflow in the first quarter. Assets have grown 23% this year to $928.5 million.”
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. For instance, McKinsey & Company calculated that China’s healthcare spending could triple between 2011 and 2020. [Read More: Growth for Medical Devices ETFs]
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. [Read More: Inversion Crackdown Affects Health Care ETFs]
“IHI is a targeted bet on a health care niche. It invests in 47 U.S. companies that manufacture and distribute medical devices. Edwards Lifesciences (EW) is a top-rated IBD stock within this industry group, based on measures of technical and fundamental health such as earnings and sales growth,” adds IBD.
[related_stories]iShares U.S. Medical Devices ETF
