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This Healthcare ETF Continues Beating Higher

ETF Professor

The healthcare sector is the second-best performer in the S&P 500 this year behind technology. Traditional, diversified healthcare exchange traded funds are delivering for investors. Just look at the Health Care Select Sector SPDR (NYSE: XLV).

The largest healthcare ETF is up 18.7 percent year-to-date. However, tactical investors have been reward even more with more focused healthcare ETFs. A prime example of that theme is the SPDR S&P Health Care Equipment ETF (NYSE: XHE), which hit an all-time high Tuesday and is up nearly 28 percent this year.

Strength from medical device and equipment makers is not a new theme. That sub-industry was the best-performing corner of the healthcare sector last year when the broader healthcare space notched its first annual negative performance since 2008.

Details On XHE

XHE, which turns seven years old in January, tracks the S&P Health Care Equipment Select Industry Index. That benchmark “provides the potential for unconcentrated industry exposure across large, mid and small cap stocks,” according to State Street.

Home to 68 stocks, XHE focuses on two industry groups: Healthcare equipment manufacturers and healthcare suppliers with the former representing nearly three-quarters of the ETF's weight.

“Among the device types, cardiovascular medical devices are the dominating segment in terms of revenue due to its rising incorporation in the cardiac surgeries which is rising worldwide,” according to the "Global Reprocessed Medical Devices Market Size, Market Share, Application Analysis, Regional Outlook, Growth Trends, Key Players, Competitive Strategies and Forecasts, 2017 - 2025" report. “Devices such as cardiac positioning and stabilization devices, electrophysiology catheters and blood pressure cuffs are the widely used reprocessed medical devices.”

Waiting On Tax Help

In the U.S. alone, the medical device industry is a $140 billion industry. A potential catalyst looms with Republicans' efforts to permanently repeal a burdensome tax aimed at the industry that was part of the Affordable Care Act. That tax was suspended late in the Obama Administration, but industry leaders are pushing the Trump Administration to repeal it outright.

XHE is not a large ETF as it has just over $155 million in assets under management, but on a percentage basis, the ETF is growing rapidly as about a third of its assets have flowed in just this year.

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