In the 2/10/2012 edition of USA Today, journalist Janice Lloyd presented a number of sobering stats for baby boomers. For example, the demand for knee replacements in the 45-64 age bracket has tripled over the past 10 years. What’s more, nearly one-fifth of the 4.5 million Americans who have already experienced total knee replacements may eventually require revisions due to loosening, fractures and/or general wear and tear.
Why do these numbers matter? For one thing, prosthetic joints from knees to hips should be extremely profitable for manufacturers for decades to come. For another, the iShares Medical Devices Fund (NYSEARCA:IHI) may be a better way to diversify across implant manufacturers - from Zimmer Holdings (NYSE:ZMH) to Stryker Corporation (NYSE:SYK) to Mako Surgical Corp (NASDAQ:MAKO).
Granted, ”Big Pharma” has been a better performer over the course of the three-year bull market. This is due primarily to an investor base that shunned the risk of rapid-growth industries. In the last three months, however, the technologically-oriented, economically sensitive, medical device segment has picked up a head of steam.
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There are a variety of things to like about the iShares Medical Devices Fund. Beta risk is roughly 10% less than that of the S&P 500. The cost of ownership is a relatively reasonable 0.47%. And many of the orthopedic implant maker’s in the Dow Jones U.S. Select Medical Equipment Index have exceptionally profitable sources of recurring revenue.
Chart-lovers and technical analysts should be relatively impressed as well. There has been a fairly well-defined support level for the downside at a price point of 54. The current price is above the 200-day moving average. Yet, based upon 52-week highs, IHI still might have plenty of room to run.
Personally, I might wait for a bit more of a pullback before establishing a position. That said, if we see continued evidence of a “so-so” backdrop for stock assets if there are additional signs that Europe can “muddle through” and China can expand without sparking inflation – the iShares Medical Devices Fund (IHI) may certainly make it onto my “wish list.”
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.