In an anticipation of new healthcare legislation from Senate Republicans, investors bid up the S&P 500's second largest sector weight this week. Senate Republicans have been trying to repeal the Affordable Care Act (ACA), also known as Obamacare, for several years, and they revealed their healthcare reform effort Thursday. While the proposed legislation has plenty of critics and is viewed in some circles as controversial, financial markets had another view. Extending a theme that has been seen throughout this week, of the 17 exchange-traded funds (ETFs) that hit all-time highs yesterday, 10 were healthcare funds.

One of the healthcare ETFs rallying to record highs yesterday was the iShares US Medical Devices ETF (IHI), a move that extended the fund's year-to-date gain to 25.6%. IHI's surge is not new. Last year, when the healthcare sector struggled to its worst annual performance since 2008, IHI mustered a solid gain. Over the past year, IHI has outperformed the largest diversified healthcare ETF by over 1,000 basis points. (See also: IHI: iShares US Medical Devices ETF.)

IHI and medical device stocks have been levered to political goings on for several years, explaining why the ETF is surging amid the unveiling of the new Republican legislation. That legislation, known as the Better Care Reconciliation Act, features several tax cuts, including one for medical device makers. Medical device stocks and IHI rallied after Election Day in anticipation that the Trump Administration and the Republican-controlled Congress would move to repeal the medical device tax that was implemented as part of Obamacare. (See also: Trumpcare Explained.)

"Currently, the medical device tax is suspended through the end of this year, but under either the House or Senate bills it would be permanently repealed before the moratorium on the tax ends," reports the Regulatory Affairs Professional Society. "Device makers have long pushed for the tax to be repealed, which the Advanced Medical Technology Association (AdvaMed) says has led to declining job figures in the medical device industry and higher costs to consumers."

IHI tracks the Dow Jones U.S. Select Medical Equipment Index and holds 50 stocks. Medtronic Plc (MDT) and Abbott Laboratories (ABT) combine for over 20% of IHI's roster. Long-term trends bode well for medical device and equipment makers. "This transformation of the medical device industry is fueled by ageing population, proliferation of chronic diseases, increasing emphasis on quality of care and treatment, stringent regulatory landscape focusing on patient safety and cost-containment, empowered and informed customers, and emerging technologies," according to Frost & Sullivan. (See also: Investing in Medical Equipment Companies.)

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