Exchange Traded Funds and the Growing Market of Medical Devices

Jun 22, 2017

Investopedia defines exchange traded funds (ETF) as a marketable security which tracks bonds, commodities, or a basket of assets like an indexed fund. In layman’s language, ETF is a fund which owns assets like stocks, bonds, and gold bars, and divides their ownership into shares. The shareholders in ETFs, therefore, have only indirect ownership of the assets. Also, though a lot similar to the mutual funds, ETFs have lower fees and higher liquidity when compared to the mutual funds.

Medical devices ETFs

The medical sector is the latest industry to open up to ETFs. Medical devices ETFs involves investment in the stocks of those companies which are involved in manufacturing and distribution of medical devices. The main focus of ETF is to encourage manufacturers of medical devices to venture into technological innovations so as to come up with better quality medical products.

Just like the pharma industry, the medical devices companies too struggle with the high costs involved in long testing processes, R&D activities, as well as getting approval for their products. This is one major reason why many manufacturers prefer using the existing technologies rather than investing in R&D activities. Through ETFs, manufacturers who do not fall under the category of public companies too can take the risk of investing in R&D projects.

As of now iShares US Medical Devices and SPDR S&P Health Care Equipment are the two medical ETFs available in the market. IShares was launched in 2006, and at present holds 50 big names from the medical devices industry. For instance, Medtronic PLC, Abbott Laboratories, Thermo Fisher Scientific, and Danaher Corp are some of the major companies under iShares. SPDDR S&P Health Care Equipment, on the other hand, is much smaller than iShares – but has some major names like Globus Medical, Alere, and Varex Imaging under it.

Infiniti’s take on medical devices ETFs

ETFs, no doubt, are not as intimidating as mutual funds. By bringing a variety of companies under a single stock trading market, ETFs makes it easier for players in the medical devices industry to gain access to the stock market. It also allows investors to keep a track on the companies which are performing well in the share market, and thereby helps in boosting the credit inflow.

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