Investing in The Operating Room Where Tech And Healthcare Meet | ETF Trends

By Todd Shriber via

Healthcare costs are escalating and for patients, those expenses seem to reach new heights in the operating room. A new generation of sophisticated, high-tech gadgets, machines and even robots are among the reasons surgery costs are soaring.

There are multiple benefits to the increasing intersection of healthcare and technology. Surgical innovation reduces risks for patients, pares recovery times, lowers in-surgery complications and reduces post-operation pain and scarring. Investors can tap into healthcare evolution, too, but properly accessing the investment potential of rising operating costs requires a discerning eye.

Said another way, a large- or mega-cap healthcare stock or diversified sector index fund may lack adequate exposure to dedicated medical device manufacturers, the very segment of the market investors should look to as an avenue for tapping rising surgical costs.

For example, Johnson & Johnson (JNJ) has a large medical devices business, but in the second quarter, that unit accounted for just $6.48 billion of the company’s $20.56 billion in revenue. Likewise, medical device manufacturers and healthcare equipment makers represent just over a quarter of the S&P 500 Health Care Index compared to 32 percent for pharmaceuticals stocks.

Ideas for accessing a basket of medical equipment stocks in a passively managed wrapper include the iShares U.S. Medical Devices ETF (IHI), the largest exchange traded fund (ETF) dedicated to this industry. As the chart below indicates, IHI has been the clear winner over the past three years among iShares’ diversified and healthcare industry ETFs. During that time, IHI sharply outperformed biotechnology, healthcare providers and pharmaceuticals ETFs.

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