The healthcare industry, especially its biotechnology corner,
has been a great performer so far this year as evident from an
impressive 43.64% gain in S&P biotechnology select industry
index in the last one year (as of November 25, 2013). The credit
for this bull run can at least partially be traced back to the
approval of the Affordable Care Act in 2010.
The legislation, often known as 'Obamacare', was aimed at
bolstering the number of insured Americans, should boost demand for
Pharma and Medicare industry as a whole. The enrollment to purchase
insurance plan under the law was carried out in October.
Also, increasing merger & acquisition activities, new
investment havens in the under-penetrated emerging markets, several
new drug approvals and steadily rising global health care spending
assisted the sector to outperform the broader market.
In fact, to account for the rise in aging population and the
consequent higher rates of chronic disease, the sector will likely
witness even more demand ahead. This corner of the healthcare space
has posted solid earnings on good fundamentals, resulting in
soaring stock prices.
Robust earnings from some of the companies in the sector such as,
Alexion Pharmaceuticals Inc (
), Amgen Inc (
) and Merck & Co. (
) as well as a bullish outlook on drug approval from the likes of
Gilead Sciences, Inc. (
) pushed the sector into a rally (read:
4 Ways to Play the Bullish Trend in Healthcare with
Further, with 'taper hold' in the U.S. and cheap dollars available
around, investors are aggressively picking high-flying sectors like
healthcare, technology and consumer discretionary in order to reap
as much capital appreciation as they can. This was another reason
behind the exciting run of biotech equities.
Affordable Care Act or Obamacare was debated during the recent
'government shutdown' leading to a slight pullback in most of the
biotech funds in early October. Now with the economy partially
averting the shutdown, the sector seems to be back on track once
If these were not enough, within the Zacks Industry classification,
the rank of the concerned MED-BIOMED/GENE industry is currently
. The rank is in the top 1/3 of all 260 plus industries ranked,
highlighting the group's near-term Positive outlook (read:
About Zacks Industry Rank
How to Play?
Investors looking to gain exposure to this uptrend may want to take
a look at the following ETFs, as these offer concentrated exposure
to biotechnology companies. The biotech ETFs mentioned below could
be worthwhile as all these have a Zacks ETF Rank #1 (Strong Buy).
The gains out of these funds were double the return offered by the
broader market fund
SPDR S&P 500
) in the same time frame.
iShares Nasdaq Biotechnology ETF
This fund provides exposure to 119 companies by tracking the Nasdaq
Biotechnology Index. With AUM of more than $4.00 billion and
average daily volume of about 700,000 shares a day, this is by far
one of the largest and the most popular ETFs in the biotech space.
The ETF charges a reasonable 48 bps in annual fees.
The product has concentration in the top 10 holdings which account
for as much as about 60% of the total. Top three holdings Biogen (
), GILD and CELG make up for about one-fourth share of the fund.
Growth stocks are once again a big part of the portfolio with 78%
of the assets while large cap calls for 60% exposure (see more in
In terms of performance, IBB returned as much as 62% in the
year-to-date time frame. The fund carries a Zacks ETF Rank #1
(Strong Buy) with a medium risk outlook.
Market Vectors Biotech ETF
This fund looks to track the Market Vectors US Listed Biotech 25
Index, holding 26 securities in the basket. With an AUM of $473.3
million and an average trading volume of nearly 120,000 shares a
day, the fund offers moderate liquidity.
The fund is a cheaper option as it charges a 35 bps fee per year,
much lower than the average expense ratio of about 45 basis points
a year. The product is largely concentrated in its top 10
securities with around 70% of exposure and is tilted toward large
cap and growth stocks.
takes the top spot with 14.6% coverage, closely followed by AMGN
and Celgene (
) at 11.72% and 8.91%, respectively. The ETF added a massive 63% in
the year-to-date time frame (as of November 25, 2013). The fund
carries a Zacks ETF Rank #1 (Strong Buy) with a high risk outlook.
PowerShares Dynamic Biotechnology & Genome
This ETF follows the Dynamic Biotechnology & Genome Intellidex
Index. The product has a somewhat low volume of 80,000 shares a
day, but a decent level of about $276 million in assets under
management. The fund charges 63 bps in fees and expenses from
investors. It is a slightly pricey option.
The fund is tilted toward growth stocks. The product has added an
impressive 64.2% in the year-to-date frame. The fund has a Zacks
ETF Rank #1 (Strong Buy) with a medium risk outlook (read:
Top Biotechnology ETF in Focus: PBE
In a nutshell, the sector is poised to surge in the near term.
Investors should note that, the debt ceiling debate will likely
resume early next year again raising some concerns over Obamacare -
one of the drivers of the sector. However, this should not be much
of an issue as long as generic drivers of biotech companies remain
intact and investor demand for growth securities remains robust.
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AMGEN INC (AMGN): Free Stock Analysis Report
MKT VEC-BIOTECH (BBH): ETF Research Reports
GILEAD SCIENCES (GILD): Free Stock Analysis
ISHARES NDQ BIO (IBB): ETF Research Reports
PWRSH-DYN BIO (PBE): ETF Research Reports
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