Increased demand from emerging markets and domestic macro factors are expected to be major driving forces behind growth in the medical device and biotechnology sectors and the exchange traded funds (ETFs) that track them.

Emerging markets are expected to be at the forefront of economic growth for the next few years as many are rich in natural resources, which are expected to be in high demand in the near future, and most are much more nimble than their developed counterparties which enable them to grow at a more rapid pace.  Furthermore, many emerging nations were able to shun themselves from the global financial crisis due to lack of exposure to global credit markets and the natural propensity to save that is instilled in their consumers.

As a result of the expected growth in emerging markets, consumer wealth and purchasing power in these nations is expected to rise.   This should further result in increased demand for health-care services, which will likely result in upgrades to health-care infrastructure and enhancements to the desire to prolong life spans.

Further demand in the medical device sector is expected to dwell from macro changes in the United States, states Morgan Joseph of Barrons.   Some of these macro forces include a more restrictive Food and Drug Administration (FDA), increased reimbursement pressure, sluggish growth for elective services and continued pushback from health-care providers. 

At the end of the day, demand in the medical device sector is expected to increase in the near term future paving the path to opportunity for the following ETFs:

  • iShares Dow Jones US Medical Devices (IHI), which boasts holdings such as Medtronic Inc. (MDT), Covidien, Ltd. (COV) and Thermo Fisher Scientific (TMO).
  • PowerShares Dynamic Biotechnology & Genome Portfolio (PBE), which boasts holdings such as Illumina Inc. (ILMN) and Sigma-Aldrich Corporation (SIAL).

Disclosure: No Positions

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