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Exchange-traded funds (ETFs) are a popular investment strategy, and generally contain a variety of publicly traded companies under one stock symbol, often with a focus on a specific sector.
Depending on the ETF, investors may be able to track up-and-coming companies, get exposure to top firms or a mix of both. Aside from stocks, some ETFs also track commodities or bonds.
In the healthcare industry, medical device ETFs bring together companies that go to great lengths to develop pharmaceutical-based technology that can improve the lives of patients.
What is an exchange-traded fund?
ETFs are similar to mutual funds and trade on exchanges like any other standard stock. ETFs are appealing because they give investors the ability to hone in on a specific market area without investing in individual companies.
Put simply, ETFs reduce the risk of investing by providing access to a larger pool of companies — they let investors pick an area that interests them and suffer less financially if one company under the ETF’s umbrella underperforms. In this way, ETFs allow investors to enter the market confidently and hopefully enjoy long-term capital gains.
Like many areas of the life science space, the medical device sector can be volatile, making ETFs particularly appealing. For example, if a company in a medical device ETF fails a clinical trial or receives negative feedback from the US Food and Drug Administration, ETF investors will largely be protected from any share price drop the stock might have.
On the other hand, if a company in a medical device ETF sees a major gain, that increase will also be muted for ETF investors. That’s why some investors prefer to take their chances by adding individual stocks to their portfolios.
Medical device ETFs to consider
Investors keen on medical device ETFs only have three choices, according toETFdb.com.
Here’s a brief look at the two biggest medical device ETFs available. The third ETF, the First Trust Indxx Medical Devices ETF (BATS:MDEV), is much smaller with total assets of only US$3.08 million.
1. iShares US Medical Devices ETF (ARCA:IHI)
Total assets: US$5.54 billion
The iShares US Medical Devices ETF was launched in 2006 and tracked 56 holdings as of January 29, 2024. This iShares ETF has more than US$5.4 billion in assets under management and its top three constituents by weight are:
2. SPDR S&P Health Care Equipment ETF (ARCA:XHE)
Total assets: US$308.45 million
Formed on January 26, 2011, the SPDR S&P Health Care Equipment ETF tracked 69 holdings as of January 29, 2024. This SPDR ETF has more than US$303 million in assets under management and some of its top holdings are:
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.