The coronavirus pandemic put several disruptive themes in the spotlight, including digital health. Several exchange traded funds tap into that theme.
That group now includes the First Trust Nasdaq Lux Digital Health Solutions ETF (NASDAQ:EKG). EKG, which debuted yesterday, follows the Nasdaq Lux Health Tech Index. EKG’s index methodology is relevant to investors because it taps into the growth opportunity set available with digital health equities. The index was launched last July in partnership with Lux Capital, a venture capital firm focusing on emerging healthcare and life sciences concepts.
“In order to remain in the index, companies must have at least 7% revenue growth in one of the two preceding years or a market capitalization of at least $50 billion,” according to First Trust. “Companies added to the index during reconstitutions must have annual revenue growth of at least 10% in each of the two preceding full fiscal years.”
This new thematic ETF holds 59 stocks ranging in weights of 0.14% to 9.14%. EKG’s top five holdings combine for about 41% of the fund’s weight. Member firms include biotech companies, medical device makers, and software firms, among others. EKG, though it faces entrenched competition, may have come to market at the right time because nearly $60 billion was invested in digital health startups in 2020 and 2021 combined.
Additionally, healthcare is arguably the most disruptive sector after technology, and many emerging health solutions, including digital ones, credibly fit the bill as innovative. That could be a sign of compelling long-term opportunity for EKG.
“Transformative shifts within health care are creating opportunities for companies that embrace innovation in technological and medical advances,” notes First Trust. “Personalized, real-time analytics delivered from a wearable device, the use of artificial intelligence, virtual reality and augmented reality during surgical procedures, developments in genomic sequencing—these are just a few of the breakthroughs brought about by innovations in digital health.”
Bottom line: EKG is new, but it could emerge as an interesting way for investors to play the rising intersection between healthcare and tech.
“The fund provides exposure to companies that are primarily engaged in and involved at the intersection of healthcare and technology (‘Digital Health Companies’), including those focused on healthcare technology in medical and surgical devices, clinical diagnostics, healthcare-related business/productivity software and other healthcare technology,” concludes First Trust.
EKG charges 0.65% per year, or $65 on a $10,000 investment.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.