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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some health-care equipment stocks to your portfolio, but don't have the time or expertise to hand-pick a few, the SPDR S&P Health-Care Equipment ETF (NYSEMKT: XHE ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a low 0.35%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too new to have much of a track record to assess. For what it's worth, it underperformed the world market last year, and is ahead of it this year. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why health care?
For starters, our planet's growing, and our aging population will keep demand rising for health-care products and services. On top of that, Obamacare is likely to usher more Americans into health coverage, delivering more consumers to companies treating them.
More than a handful of health-care equipment companies had strong performances over the past year. Stent and defibrillator specialist Boston Scientific (NYSE: BSX ) surged 114%, in part due to its gaining FDA approval for a new catheter, and also for its small, but growing, electrophysiology business. The company has topped expectations recently, and has been improving some of its performance numbers, such as profit margins.
Hill-Rom (NYSE: HRC ) gained 22%. The specialist in equipment, such as patient beds and surgical equipment, reported a third quarter that featured mixed results and management asserting: "Despite revenue slightly below our expectations, we are pleased to report adjusted earnings in line with our guidance and stable adjusted gross margin compared to the prior year... The health-care environment remains challenging, and we will continue our focus on initiatives to improve margins and maintain our strong, consistent cash flow."
The stock yields 1.6%, which reflects a recent 10% dividend boost as well as a big hike in the company's stock-buyback program. That signals confidence, but the shares may not exactly be bargains, with a P/E ratio near 20, well above its 11.7 five-year average.
Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. Heart-valve maker Edwards Lifesciences (NYSE: EW ) sank by 32%. It had a sharp drop in April, when it posted disappointing earnings results for its first quarter, and lowered its guidance. It has disappointed before, and also has to contend with some cranky workers. Its second quarter was different, though, exceeding expectations on solid sales of its Sapien valve. It gained approval in Japan, as well. Edwards recently won a patent infringement case against Medtronic, a huge medical-device maker. (To be clear, Medtronic is a huge company that makes medical devices, not a company that makes huge medical devices!)
MAKO Surgical (UNKNOWN: MAKO.DL ) slid 12% over the past year. It seems to be rebounding, though, after making pessimists of many investors, and then posting strong second-quarter numbers, with revenue up 19%. Bulls want to see its robotic surgical equipment approved for more kinds of procedures, which can drive sales considerably. Bears question the future of robotic surgery.
The big picture
Demand for health care isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.