Medtech Basket Update
Stray Narratives, Issue 24 - A very short update where one name leaves the medtech basket, everything else remains the same
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Globus Medical gets booted out from the medtech basket. The ETF remains, it is the simplest way to express this trade, this is only a small one-time adjustment to the basket.
The rationale here is painfully simple. Back in July 2024, the FDA sent Globus a warning letter regarding its flagship surgical robot. Fast forward two full years, and as of its most recent annual report, that letter was still open and I missed that. I could have left the basket as is but this is one of my highest conviction themes for the next 12 months so it deserves to be as “perfect” as I can make it.
To be fair, an FDA warning letter is not a product recall, nor is it a red flashing safety hazard. It is simply the regulator informing a company that its quality control system is lacking. Normally, management teams scramble and close these things out in a few months.
Globus has not. Worse, this lingering demerit sits squarely on the ExcelsiusGPS robot. That is the exact product carrying the company’s growth narrative, rather than some forgotten legacy side hustle. While that file stays open, management is busy negotiating with regulators instead of actually selling robots. You better believe any potential acquirer looking at the division is going to aggressively price in that exact headache.
I built this basket because medical device businesses are trading at irrationally cheap prices. That thesis is entirely intact but that argument relies on a rerating. A company nursing a two-year regulatory hangover on its flagship product does not get to be treated like a normal business until the FDA explicitly says so.
Then there is the sheer absurdity of the math. The robotics division accounts for less than 5% of their total sales. We are essentially dealing with a 24-month regulatory purgatory attached to a business line that was never going to radically move the needle anyway.
I apologize for missing that and I am correcting that omission by taking out the stock. On a positive note, you can witness that I continuously review existing holdings, so in theory, I hope to catch mistakes and adjust them before they cause too much damage.
I will be sharing a page with subscribers that lists all trades since inception (four months) and where they stand, I am just finalizing the layout.
In the meantime, here is the updated basket:
