• 15 Jul, 2025
• Dr. Mahdi Khazaei

Medical Device ETFs Get a Lift from Surgery’s Return and a Wave of Acquisitions

Behind the modest rally is a simple reality: patients are finally getting procedures they put off for two years. Hospital operator HCA Healthcare told investors in April that admissions rose 2.6 percent in the first quarter and that demand for knee replacements, cataract fixes, and other discretionary operations shows no sign of fading. reuters.com More procedures mean more screws, catheters, and pacemakers, so suppliers are shipping inventory at a healthy clip. Intuitive Surgical, the robot maker that sits near the top of IHI’s holdings, said in January that global use of its da Vinci systems jumped 18 percent year on year and that it expects at least a low-teens percentage lift for 2025 as hospitals work through backlogs. reuters.com

Investors drawn to the story have a short menu of vehicles. IHI is the large-cap, market-weight option with roughly five billion U.S. dollars under management. It leans heavily on familiar brands such as Abbott Laboratories, Intuitive Surgical, and Boston Scientific. By contrast the SPDR S&P Health Care Equipment ETF (XHE) spreads its money equally across about sixty names, so smaller innovators carry as much weight as giants. That structure looks great when start-ups are in favour, but it can sting when interest rates are high and cash-burning companies trade at a discount. As of the end of May, XHE was still down eight percent for the year. ssga.com

Performance gaps like that raise a question: is the recent bounce just the last gasp of a recovery trade or the start of something longer? One clue lies in a wave of takeovers that has swept through the sector. Big medical-technology companies have decided it is cheaper to buy the next breakthrough than to build it themselves, and that desk-drawer pipeline is often sitting in the very same small caps that XHE owns.

The string of deals started last April, when Johnson & Johnson agreed to buy Shockwave Medical for about 13 billion dollars. Shockwave’s catheter sends sound waves through clogged arteries, a niche that fits neatly beside J&J’s existing cardiovascular lines and promises a ten-billion-dollar addressable market, according to analysts quoted at the time of the announcement. reuters.com Less than nine months later Stryker reached for Inari Medical in a 4.9 billion-dollar all-cash deal, betting that Inari’s minimally invasive tools for dangerous blood clots will accelerate its own push into peripheral-vascular care. reuters.com Boston Scientific followed suit in January with an agreement to acquire privately held Bolt Medical, aiming to expand its cardiovascular portfolio even further. news.bostonscientific.com

These transactions matter for ETF holders because the funds receive a takeover premium overnight, then recycle the cash into the next target. Every buy-out also signals to the market that strategic buyers see value the stock market has missed. Portfolio managers at several Canadian pension funds now argue that the combination of rising hospital volumes and a steady bid from cash-rich acquirers puts a floor under the device group even if macro conditions wobble later this year.

There is another tailwind: hospitals are finally spending on capital equipment again. Executives at HCA and Tenet have told Wall Street that staffing shortages, once a drag on volumes, are easing. With operating rooms humming, administrators can justify orders for new robots, imaging consoles, and patient-monitoring systems. The mix of procedures is also evolving. Weight-loss drugs have grabbed headlines, but surgeons still implant heart valves, repair joints, and remove tumours. In many cases those drugs extend life and therefore enlarge the pool of people who will eventually need surgery. Some device makers, such as Boston Scientific, are even eyeing combination therapies in which digital health tools track patients after procedures, creating recurring revenue streams that were rare in the old single-use-device model.

Of course, medical devices are not immune to risk. The sector faces the same tariff overhang that worries pharmaceutical importers, and a strong U.S. dollar can pinch earnings translations for global players. Supply-chain kinks linger on certain microchips and sterile plastics. There is also the elephant in the operating room: insurance reimbursement. If elective surgeries keep rising faster than expected, insurers could lean harder on hospitals to hold down prices, a step that would eventually ripple back to suppliers. Still, device companies have navigated pricing pressure for decades and have generally used innovation to stay one step ahead.

For investors who prefer to let someone else pick the winners, an ETF remains the easiest way to gain exposure. IHI offers stability through its heavy dose of blue chips and has a thirty-five basis-point expense ratio, while XHE brings lottery-ticket upside, along with more volatility, at roughly the same fee. A third option, the First Trust Indxx Medical Devices ETF, is much smaller and less liquid, which makes it suitable only for investors willing to accept wider bid-ask spreads.

The bottom line is that the medical device story in 2025 is no longer just about filling post-pandemic backlogs. Hospitals are investing for growth, makers of hardware and software are merging to grab share, and the pipeline of robots, AI-guided imaging systems, and minimally invasive tools looks busy enough to keep that cycle turning. Investors who want a simple doorway into the theme can still find it in a low-cost ETF, but they should understand the differences under the hood before writing the ticket.

Sources

iShares U.S. Medical Devices ETF, fund page, data as of 3 July 2025

SPDR S&P Health Care Equipment ETF, performance table, State Street Global Advisors, 31 May 2025

HCA Healthcare beats profit estimates on strong demand for medical care, Reuters, 25 Apr 2025

Intuitive Surgical beats estimates on strong demand for surgical robots, Reuters, 23 Jan 2025

Johnson & Johnson to buy Shockwave Medical in 13 billion-dollar deal, Reuters, 5 Apr 2024

Stryker strikes 4.9 billion-dollar deal for Inari Medical, Reuters, 6 Jan 2025

Boston Scientific announces agreement to acquire Bolt Medical, company release, 8 Jan 2025