The top five holdings in this ETF are: Abbott Laboratories (ABT, 13.40% of assets); Medtronic PLC (MDT, 13.21%); Thermo Fisher Scientific Inc (TMO, 10.57%); Danaher Corp (DHR, 7.91%); and Intuitive Surgical Inc (ISRG, 4.66%).
iShares U.S. Medical Devices ETF (IHI)
from Internet Wealth Builder
iShares U.S. Medical Devices ETF (IHI) is narrowly focused on U.S. manufacturers in the medical device sector.
In the last decade, the fund has performed significantly better than the S&P 500. It has also been marginally better than the Dow Jones U.S. Medical Equipment Index, which it mirrors. The ETF is up 5.2% since being recommended in June and 20.9% in the last 12 months.
The fund holds 56 stocks, but five holdings account for about half of its value. Those five are the real reason for its strong performance.
The biggest is Abbott Laboratories (ABT). Abbott sells a range of generic drugs as well as medical devices, diagnostic tools, and nutrition products such as Ensure and Similac. The company reported a 37% rise in profit in its second quarter. That was driven by demand for heart devices and its glucose monitoring system that uses sensors to measure blood sugar levels. Earnings per share were 36% higher.
Medtronic (MDT) is the second largest holding. The company increased its dividend by 8% in June and its shares hit a new high at the end of July. This followed a fourth quarter that beat estimates, led by higher sales at its unit that makes surgical instruments used to treat hernia and kidney ailments. Medtronic has been building its minimally invasive and robotic surgery device business to ease the impact of rising competition in its cardiac and vascular unit that makes stents and heart pumps.
The ETF was launched in 2006 and has $4.2 billion in assets. It has a management fee of 0.43% and a modest dividend yield. It also has a very high p/e ratio, which says high growth expectations are built into the price. Any distributions would be subject to U.S. withholding tax unless they are received in an RRSP or RRIF.
This ETF is not suitable for income investors, but if you can live with market pullbacks, the underlying assets are gold standard. Increased longevity is creating demands on all aspects of healthcare. At the same time, new technologies such as robots and artificial intelligence are creating new processes and improving old ones. The companies in this ETF are well-placed to take advantage of them.
Buy for long-term growth.
Adam Mayers in Gordon Pape’s Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, September 30, 2019