Medical Devices ETF Pumps Higher

ETF Trends

For better and worse, the health care sector, the S&P 500’s third-largest sector weight, has received plenty of attention this year.

For better because health care ETFs have been prodigious gatherers of assets while rewarding that faith displayed by investors. Only the Utilities Select Sector SPDR (XLU) has outperformed the Health Care Select Sector SPDR (XL.V) among the nine sector SPDR ETFs this year. [Health Care ETFs Exert Leadership]

For worse because the once high-flying biotechnology sub-sector came under significant pressure in the latter half of March after valuations in the historically expensive industry soared above long-term averages, stoking talk of a bubble. [Biotech ETFs on the Brink]

Put the medical devices and equipment sub-sector and the iShares U.S. Medical Devices ETF (IHI) in the better category. Year-to-date, the $696.6 million ETF is up 9%, a performance that has bested traditional health care sector ETFs, biotech funds and insurance ETFs like the iShares U.S. Healthcare Providers ETF (IHF) . IHI gained 0.6% Wednesday to close at another new all-time high.

IHI, once thought to be vulnerable to a punitive, stealth tax on its holdings and other medical device makers contained in the Affordable Care Act, has outperformed four of its top-five holdings this year. Of the ETF’s top-five holdings, a group that combines for over 45% of IHI’s weight, only Covidien (COV) has outdone IHI. [Obamacare Could Hurt This ETF]

IHI has also gotten a lift from Intuitive Surgical (ISRG). Among deep triple-digit stocks, Intuitive Surgical is overshadowed by Amazon (AMZN), Apple (AAPL) and Chipotle (CMG), to name a few. Perhaps that should not be the case as Intuitive Surgical is up more than 36% year-to-date while Amazon and Apple are in the red. Chipotle’s 2014 performance would have to increase more than three and a times to get in Inuitive Surgical’s neighborhood.

On Tuesday, shares of Intuitive Surgical surged 13% after the FDA approved its latest robotic surgery device.

Even with the strength in medical device stocks this year, IHI sports a P/E ratio of 25.76, which is below that of 28.8 sported by the iShares U.S. Pharmaceuticals ETF (IHE) and far below the P/E of 44.1 found on the iShares Nasdaq Biotechnology ETF (IBB) , according to iShares data. IHI also has a three-year standard deviation that is 250 basis points below that of IBB’s.

iShares U.S. Medical Devices ETF

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ETF Trends editorial team contribute to this post. Tom Lydon’s clients own shares of Apple and Amazon.

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.

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