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Can the EDOC ETF recover from a post-pandemic slump

The Covid-19 pandemic increased the need for digital healthcare, providing a boost for telemedicine firms tracked by the Global X ETF. While demand for these services has since fallen, the sector could hold long-term growth potential.

The Global X Telemedicine and Digital Health ETF [EDOC] has tumbled since the start of the year as patients return to in-person care. Though the ETF’s share price saw steady growth in 2020 and the beginning of 2021, it has plunged 29.5% in the past year to close at $13.85 on 18 April.

While the gradual reopening of society and reduced demand for digital medical consultation is partly to blame for this decline, Global X has also been blasted by higher inflation and interest rates as investors turn away from tech stocks to value. As a result, investor interest has dwindled since pandemic restrictions have ended, but analysts remain bullish about the future of digital healthcare.

“This ETF will be able to generate a steady growth in future, as the growth drivers are largely present,” writes Seeking Alpha. “This ETF surely can sail through troubled waters.”

EDOC’s constitution

EDOC, launched at the height of the pandemic in July 2020, invests in companies positioned to benefit from further advances in the field of telemedicine and digital health. This includes companies involved in telemedicine, healthcare analytics, connected health care devices and administrative digitisation.

The ETF has, according to Yahoo Finance, a year-to-date total daily loss of 13.72% and $211.53m of total assets under management.

It has 37 holdings, of which healthcare IT firm Cerner Corporation [CERN] has the biggest weighting with 7.36%, followed by UnitedHealth Group [UNH] (6.51%), cardiac monitor group iRhythm Technologies [IRTC] (6.33%) and Change Healthcare [CHNG] (6.15%). Other holdings include continuous glucose monitoring system provider DexCom [DXCM] (4.86%) and virtual care tech group Teladoc Health [TDOC] (2.59%).

iRhythm and DexCom lead the way

Despite the ETF’s muted performance in 2022, some of its largest holdings have seen promising growth, which is testament to the potential the telemedicine sector holds.

At the close on 18 April, the iRhythm Technologies share price was up 16.2% year-to-date. This was helped by its fourth-quarter revenues of $81.8m, up from $78.81m in the same period of 2020. Looking ahead, the result of clinical research studies showing that its cardiac monitoring device Zio can diagnose irregular heart rhythms and reduce hospital admissions could provide a significant boost for the company.

DexCom reported a 27% year-over-year jump in revenue to $2.4bn for fiscal year 2021, helped by a 23% surge in its share price in March this year. Its G7 monitoring system also received the green light to be sold in the European Economic Area for people with diabetes aged two years and over.

While Teladoc shares have slumped 31% since the start of the year to $65, analysts remain bullish on the virtual healthcare firm. As reported by the Fly, Guggenheim analyst Sandy Draper has a ‘buy’ rating on the stock and a $96 price target. Draper says that Covid-19 created a “short-term upswing in awareness and utilisation, but also accelerated the longer-term shift to broad-based adoption”. Draper believes that the group can deliver 25–30% in revenue growth through 2024.

Room for growth in telemedicine

While EDOC has seen a slump in its share price in recent months, a strong case for digital healthcare as a viable long-term alternative alongside more traditional care was made during the pandemic. The option for GP surgeries to see patients via video calls could ease queues and waiting lists for on-site consultation, and also make it easier for people to access care if they have difficulties travelling.

Telemedicine could also be crucial in areas that are remote or lack sufficient healthcare infrastructure. According to Global X, around half of the global population lacked essential healthcare services in 2019. “As more underserved markets gain broadband access, telemedicine offers vast opportunity to bridge the divide,” it stated. “The pandemic increased adoption of digital health services, with many turning to telemedicine for the first time, accelerating the theme’s reach.”

Between 2019 and 2020, the digital health market grew by 35% to $55bn, Global X data showed. The company forecasts that the sector could be worth almost $300bn by 2028. Additionally, according to Mordor Intelligence, the patient monitoring market was valued at $37.1bn in 2021 and is expected to record a CAGR of 8.97% between 2022 and 2027.

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