On this week’s episode of ETF Prime, Zeno Mercer, senior research analyst at TMX VettaFi, joins host Nate Geraci to discuss the evolution of healthcare technology. Next, Raymond Bridges, managing director of Bridges Capital and portfolio manager of the Bridges Capital Tactical ETF (BDGS), joins the podcast to discuss his unique risk-adjusted investment approach, the fund’s strategy, and the importance of the Sortino ratio in evaluating active ETFs.

Geraci and Mercer kicked off the conversation explaining how AI is revolutionizing healthcare by enhancing testing, monitoring, and data analysis to improve efficiency and precision.

“AI is being used to further enhance how we’re testing and monitoring and observing the outcomes,” Mercer said. This marks a shift toward a more data-informed and personalized healthcare system.

Healthcare’s Scale & Inefficiency

Mercer highlights healthcare as “the most single, largest, and most critical industry on the verge of a complete overhaul.” This highlights the industry’s massive scale, as it is the largest employer across many U.S. states.

AI’s Growing Impact on Healthcare

According to Mercer, studies from Microsoft demonstrate AI’s ability to diagnose and triage with high accuracy at costs “70%-75% cheaper than using doctors for complex cases.” AI tools also aid in ordering lab tests and making medical decisions. This empowers both doctors and patients.

One of the most exciting breakthroughs Mercer mentions is early cancer detection. Companies like Grail are developing blood tests that can detect up to 50 types of cancer early. “This isn’t Theranos. This is real,” he affirms.

Healthcare Technology ETF (HTEC)

Launched in 2018, the ROBO Global Healthcare Technology and Innovation ETF (HTEC) invests in leading healthcare technology firms that focus on robotics, precision medicine, and early detection, featuring companies such as Grail, Natera, and Intuitive Surgical.

Mercer, who helped create the ETF before joining ROBO full time, explains that HTEC was designed to capture the long-term shift toward more efficient, tech-driven, and patient-centric healthcare systems. The fund reflects the growing demand for solutions that enhance diagnostics, automate lab processes, and improve treatment outcomes. “Healthcare technology will outpace healthcare, which is already outpacing overall GDP growth,” he noted. This emphasizes the broad opportunity set and investment case for the sector.

Current Challenges & Outlook

The sector has faced headwinds from rising interest rates, research grant freezes, and regulatory hurdles. These have led to muted valuations despite strong long-term potential. “Healthcare has been the biggest outflow area in thematic investing over the last year,” Mercer observed.

Looking ahead, he anticipates the sector will become more efficient and patient-centric, driven by the adoption of AI. “We expect the utilization rate [of AI and healthcare tech]to climb as AI proves its efficacy and efficiency,” Mercer said.

Dual-Model Strategy

Following that deep dive into healthcare innovation, Geraci shifts gears to a different kind of innovation in investing.

Bridges explains that BDGS was launched to serve retirees in South Florida who seek a smoother, risk-adjusted return on their nest eggs, rather than the volatility that suits accumulators. “Once you have your assets, you want a smoother ride. You want a better return than the volatility that comes about,” he explained.

The fund’s strategy combines a slow-rolling business cycle bias with a technical market breadth model. Bridges noted, “Our model is still saying we’re in the late stages of the bull market that started after COVID,” guiding the fund’s allocation between equities and cash alternatives. Market breadth is analyzed across multiple indices like the Nasdaq-100 and S&P 500 to time tactical trades — about two to four round-turns per year — aiming to buy when breadth is weak but strengthening to sell when it weakens.

The Power of the Sortino Ratio

Bridges highlights the Sortino ratio as a superior measure of risk-adjusted performance, focusing on downside volatility rather than total volatility like the more common Sharpe ratio. “I like to call it the ‘human desire ratio.’ People want the best return possible with as little downside as possible,” he explained. He laments that it’s underused in ETF analysis, even though his fund boasts one of the highest Sortino ratios among active peers.

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VettaFi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for HTEC and ROBO, for which it receives an index licensing fee. However, HTEC and ROBO are not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of HTEC and ROBO.