Disruptive, evolutionary and innovative are adjectives usually reserved for the technology sector, but advisers and investors ought not to sleep on the ability of the healthcare sector to wear those labels.
In fact, healthcare innovation is a credible investment theme. It is here today, rapidly growing and increasingly accessible via various investment vehicles. One definition of healthcare innovation is “the implementation of new or altered products, services, processes, systems, policies, organizational structures, or business models that aim to improve one or more domains of health care quality or reduce health care disparities,” according to AHRQ Health Care Innovations Exchange.
Many of the exciting investment opportunities in the healthcare innovation space are mid- and small-cap companies that do not have broad Wall Street recognition on par with an Amgen or a Johnson & Johnson.
Take the case of ABIOMED, Inc. (ABMD). The company has a $17.35 billion market capitalization (as of May 23rd), putting it in mid-cap territory. Shares of the Massachusetts-based provider of heart recovery and support technologies have nearly tripled over the past 12 months, rising 193.54% (as of May 23rd). Importantly, ABIOMED’s results are strong.
For the recently completed fiscal first quarter, ABIOMED said revenue rose 40%. For fiscal 2018, revenue increased 33% while operating income soared 74%.2
One of the reasons disruptive technologies are compelling is that one is often linked to another. For example, healthcare innovation and the companies in this space do not operate in vacuum. Rather, they have links to and potentially growing relationships with other purveyors of disruptive technologies, including 3D printing.
3D printing can help healthcare innovators with an array of functions, including bolstering the quality of prosthetics, improving traditionally painful skin graft treatments for burn victims and even marrying multiple pharmaceuticals in one capsule.
“The medical world, in which treatments, organs and devices are an integral part, stands to be revolutionized by the vast promises of 3D printing,” reports TechCrunch. “With precision, speed and a major slash in cost, the way we treat and manage the health of our bodies will never be the same. And that’s something to celebrate.”3
Data confirm that healthcare professionals view 3D printing as a transformative technology.
A recent survey of healthcare professionals across Europe indicates “two-thirds (66%) of professionals believe 3D printing has the capacity to fundamentally transform the health sector, and without investment in these technologies, 41% believe they will struggle to meet the needs of patients in the next five years,” according to Irish Tech News. “79% of healthcare professionals also revealed that they are using new printing technologies to improve accurate diagnostic rates and lower mortality rates.”4
This is a palpable trend for investors to consider. As the chart below highlights healthcare-related 3D printing revenue in the U.S. was $500 million in 2015, but is expected to top $935 million this year.
Source: Statista, 2018
Accessing These Themes And Others
The ALPS Disruptive Technologies ETF (DTEC) provides exposure to 10 equally-weighted disruptive technology themes, including healthcare innovation and 3D printing. DTEC’s 100 holdings, including the aforementioned ABIOMED, are also equally weighted, a strategy that may have the potential to limit single-stock risk.
*ABIOMED Inc (ABMD) was a 1.33% holding in DTEC as of 5/23/18
1 Source: AHRQ https://innovations.ahrq.gov/faq
2 Source: ABIOMED statement May 3, 2018 https://globenewswire.com/news-release/2018/05/03/1495761/0/en/Abiomed-Announces-Q4-FY-2018-Revenue-of-174-Million-Up-40-and-Total-Year-Revenue-of-594-Million-Up-33-Over-Prior-Year.html
3 Source: TechCrunch April 5, 2108 https://techcrunch.com/2018/04/05/bioprinted-organs-skin-and-drugs-how-3d-printing-is-revolutionizing-healthcare-as-we-know-it/
4 Source: Irish Tech News May 23, 2018 https://irishtechnews.ie/two-thirds-of-healthcare-professionals-believe-3d-printing-has-the-capacity-to-transform-the-health-sector/
Important Disclosures & Definitions
This material must be preceded or accompanied by a prospectus. Please read it carefully before investing
Standardized performance for the ALPS Disruptive Technologies ETF (DTEC) can be found here. Current holdings for DTEC can be found here.
ALPS Disruptive Technologies ETF Shares are not individually redeemable. Investors buy and sell shares of the ALPS Disruptive Technologies ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of ALPS Advisors, Inc. In addition, ALPS Advisors, Inc. assumes no responsibility to ensure the accuracy of the content written by the author.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
Disruptive Technology Theme Risk. Companies that the Index Provider believes are developing disruptive technologies may not in fact do so or may not be able to capitalize on those technologies. Companies that develop disruptive technologies may face political, legal or regulatory challenges. Such companies may also be exposed to risks applicable to industries or sectors other than the disruptive technology Theme for which they are chosen and may underperform relative to other companies that are also focused on a particular Theme.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus.
An investment in the Fund is subject to investment risk including the possible loss of the entire principal amount that you invest.
Companies that the Index Provider believes are developing disruptive technologies may not in fact do so or may not be able to capitalize on those technologies. Companies that develop disruptive technologies may face political, legal or regulatory challenges. Such companies may also be exposed to risks applicable to industries or sectors other than the disruptive technology Theme for which they are chosen and may underperform relative to other companies that are also focused on a particular Theme.
Smaller and mid-size companies often have narrower markets, more limited managerial and financial resources and a less diversified product offering than larger, more established companies. As a result, their performance can be more volatile, which may increase the volatility of the Fund’s portfolio.
The large capitalization companies in which the Fund invests may underperform other segments of the equity market or the equity market as a whole.
The Fund’s investments in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers, including, among others, less liquidity generally, greater market volatility than U.S. securities and less complete financial information than for U.S. issuers. In addition, adverse political, economic or social developments could undermine the value of the Fund’s investments or prevent the Fund from realizing the full value of its investments. Finally, the value of the currency of the country in which the Fund has invested could decline relative to the value of the U.S. dollar, which may affect the value of the investment to U.S. investors.
The fund is new and has limited operating history.
Indxx Disruptive Technologies Index (IDTEC): based around companies that enter traditional markets with new digital forms of production and distribution, are likely to disrupt an existing market and value network, displace established market leading firms, products and alliances and increasingly gain market share.
One may not invest directly in the index.
Thematic Investing: Designed to participate in longer term technological disrupters, economic and political developments and social trends.
Artificial intelligence (AI) is the intelligence exhibited by machines or software. One of the central problems (or goals) of AI research include natural language processing (communication).
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Disruptive Technologies ETF.
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