SPDR S&P Health Care Equipment ETF is on point amid today’s health landscape

The SPDR S&P Health Care Equipment ETF [XHE] soared 39.8% from $92.22 at the close on 24 September 2020 to $128.96 at the close on 12 February this year. Global demand for masks and ventilators helped offset postponed elective surgeries and closed medical centres.

The share price slipped slightly to $114.97 at the close on 12 May on expectations that global COVID-19 vaccination programmes would help tackle the pandemic and therefore lead to less medical spending by governments around the world.

However, the XHE share price now sits at $124.87 at the close on 20 August as investors were buoyed by continued demand for coronavirus-related healthcare equipment combined with the return of elective surgeries in hospitals.

The XHE, first launched on 26 January 2011, has a year-to-date total daily return of 8.39% and total net assets of $809.8m, according to Yahoo Finance.

That compares with the iShares U.S. Healthcare ETF [IYH] with a year-to-date total daily return of 17.96% and total assets of $2.66bn, as of 23 August.

Healthcare holdings

The XHE seeks to provide exposure to the healthcare equipment segment of the S&P Total Market Index, which comprises healthcare equipment and healthcare supplies.

For its holdings, ResMed [RMD], Danaher Corporation [DHR] and West Pharmaceutical Services [WST] all have 1.62% each, with Heska Corporation at 1.66% and DexCom [DCXM] at 1.61%.

Shares in Danaher Corporation have surged 51.3% from $212 at the close on 8 March this year to $321.54 at the close on 20 August, helped by demand for its diagnostic COVID-19 testing kits and vaccine development work during the pandemic. Its second-quarter net earnings rose 84% to $1.7bn.

Shares in ResMed have surged 149.86% from $114.34 at the close on 20 March 2020 to $285.69 at the close on 20 August 2021 driven by demand for its respiratory face masks, ventilators and remote monitoring systems to help patients fight COVID-19 and to keep frontline workers as safe as possible. It recently posted fourth-quarter revenues up 14% to $876.1m and full-year revenues up 8% to $3.2bn, also noting demand for digital health solutions for sleep apnoea has risen.

The company has just released a new positive airway pressure device called AirSense 11, for sleep apnoea which boasts an app containing a personal therapy assistant. Morgan Stanley believes that the new product will add $350m in sales to 2024, as reported on Financial Review.

Healthcare outside of COVID-19

Further proof that the XHE’s story is not just about COVID-19 is continuous glucose monitoring system provider DexCom, whose shares have rocketed 60.2% from $323.96 at the close on 13 May this year to $518.99 at the close on 20 August. Helping fight diabetes around the world enabled the group to post a 32% rise in second-quarter revenues to $595.1m.

Global COVID vaccination rollout is likely to reduce demand for medical intervention but the virus is expected to contribute to increase cases of respiratory diseases, heart disease and diabetes. Medical equipment and digital innovation for early and chronic intervention can help fight these existing and new ailments. This will continue to boost the XHE for some time.

A recent Fortune Business Insights report found that the global medical devices market was set to grow at a compound annual growth rate of 5.4% to $657.98bn in 2028.

Global regulatory and growth uncertainties increase the spotlight on the healthcare sector, which is seen as a defensive play.

According to BNK Invest, analysts are bullish and have a set target price for the XHE based upon its underlying holdings at $152.34, 22% up from its close on 20 August.

Shawn Cruz, senior manager of trader strategy at TD Ameritrade, recently told US News that the healthcare sector has the “potential for additional upside in the space and has not run quite as far as industrial and tech. It has the potential to benefit from elective surgeries and other treatments as well”.

The Motley Fool’swriter Jeff Little added: “The medical technology market is growing rapidly, with medical breakthroughs happening all the time. In order to keep up, companies are innovating and developing devices that monitor, analyse, solve problems, and provide robotic assistance in healthcare to help minimise injury risk.”

The last few months has shown how much everyone — not just investors — owe to healthcare professionals and the existing and innovative equipment which has saved so many lives.

The XHE is looking perkier than ever.