As its name implies, the Principal Healthcare Innovators Index ETF (Nasdaq: BTEC) offers investors an innovative approach to healthcare investing. Some of that innovation is borne out of doing things differently than old guard healthcare ETFs.
BTEC tracks the Nasdaq U.S. Healthcare Innovators Index, which is designed to provide exposure to early-stage small-capitalization healthcare companies. These are primarily biotechnology and life science, which have the potential to create cures for cancer, develop new medical technologies, or spearhead other medical advances.
While BTEC devotes 63.2% of its weight to biotechnology stocks, certainly a plus in the coronavirus environment, the fund also features ample exposure to medical device makers and life sciences tools producers, itself a hot corner of the healthcare sector. Elective procedures are being pushed off because of COVID-19, but that’s not a long-term threat to medical device firms.
“The widespread postponement of relatively elective orthopedic procedures has resulted in a substantial backlog,” said Morningstar analyst Debbie Wang in a recent note. “In a recent professional webinar with orthopedic surgeons, roughly one fourth indicated their hospitals had reached orthopedic backlogs in excess of 1,000 patients per hospital in the first six weeks of states shutting down.”
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. Regarding BTEC’s medical device exposure, there are avenues for the aforementioned backlog to be dealt with.
Market analysts argue that medical devices and equipment manufacturers are a good healthcare bet and remain well-positioned for global growth. 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.
“First, it may take some time for patients to feel comfortable that providers have taken appropriate measures to minimize the risk of exposure to SARS-CoV-2,” notes Morningstar’s Wang. “Second, the degree to which hospital capacity can be increased will depend on new pandemic-related protocols to manage cleaning and staffing of hospital operating rooms that are now emerging.”
BTEC is higher by almost 6% over the past month and is flirting with all-time highs.
For more on multi-factor strategies, visit our Multi-Factor Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.