With the election over, many investors assumed that one of the
key risk events for U.S. markets was past us. However, this
certainly hasn't been the case, as the election worries were just
replaced and expanded upon by fiscal cliff terror.
This panic over across the board tax hikes and trillions in
spending cuts has pushed many investors to sell out of a great
deal of their stocks with a special focus on many of the year's
top performers. This movement to selling, coupled with more
European woes and uncertain domestic data, has pushed stocks
across the board sharply lower over the past week as the rush for
the exits continues.
The impact on stocks has been especially felt in
dividend-focused securities, although a number of other segments
were also hit hard. Seemingly, not a single sector has been
immune from the selling pressure, leaving many investors to
wonder where is still safe to put assets at this time (read
Invest like Warren Buffett with These ETFs
Although it took a bit of digging, we have found one corner of
the equity world that hasn't seen a rash of selling over the past
week; biotechnology. This corner of the health care industry has
held up surprisingly well despite the market turmoil and it has
pretty much been a safe haven in this shaky economic environment;
a speck of green in what has turned into a sea of red.
This is somewhat surprising given that many biotech stocks
have been strong performers in 2012, and over the past few years,
have been among the biggest gainers in the entire equity world.
As a result, one might assume that they would be subject to
intense selling in order to lock in low tax rates, but that has
not been the case, at least so far.
There is also a deal of uncertainty over Affordable Care Act
implementation and how it will actually impact the various health
care sectors. Many don't believe that biotechs will be the worst
hit, but with more lax rules on generics and the prospect of
increased competition, this could be the case even if patient
rolls expand (read
Top Zacks Ranked Healthcare ETF in Focus
Confluence of Factors
With these points, it seems questionable that biotechs would
be leading the way in the space, but there is one thing that the
sector does have going for it, dividends, or really the lack
there of. Biotechs aren't exactly a yield destination so there
hasn't been as much panic selling in this segment as opposed to
other corners of the health care world.
In addition to this, the earnings picture remains pretty solid
for biotechnology firms as a whole, although this space can have
extremely divergent performances among the various components.
Still, the Zacks
industry of Medical- Biomedicine/Gene
receives a pretty positive Zacks Rank overall, enough to put it
roughly in the top 25%, at time of writing.
These factors of low dividend pressure and a decent earnings
picture have been enough to outweigh broad selling of big winners
and concerns over the ACA at this time. This tilt towards the
positive has been enough for many biotech stocks, as well as
, to outperform during this troubled time.
In fact, several of the ETFs in this space, which we highlight
briefly below, have been performing rather well in this
environment, losing less than the broad market, or in some cases,
putting up a post-election gain (see
Three ETFs to Prepare for the Fiscal Cliff
While this may not continue if the selling pressure
intensifies or if investors look to take gains out of this space
before it is too late, for investors looking for a potential
fiscal cliff safe haven, a closer look at any of the following
four ETFs could be worthwhile:
iShares Nasdaq Biotechnology ETF (
IBB is one of the more popular biotech ETFs on the market
today with just under $2 billion in AUM and volume of roughly
half a million shares a day. The product is also middle of the
road in terms of expenses, with an expense ratio of 48 basis
points a year.
The fund holds just under 120 stocks in total in its basket,
with just over 50% of the assets going to firms that are smaller
than large caps. Top stocks in the ETF include
Regeneron Pharma (
, all of which make up at least 8% of assets.
The fund has gained roughly 0.6% in the past five day period,
easily beating out broad benchmarks.
SPDR S&P Biotech ETF (
Another popular choice in the biotech ETF market is XBI, a
fund tracking the S&P Biotechnology Select Industry Index.
The product has just over half a billion in assets and does more
than a quarter million in volume, while its cost is just 35 basis
points a year (read
Three Biggest Mistakes of ETF Investing
The fund has a smaller basket of stocks with just under 50
stocks in its basket, and only 18% in large cap securities. Micro
and small caps dominate, while the top three holdings consist of
Myriad Genetics (
, all of which account for less than 4.1% of assets.
The fund is down about 0.8% in the past five days, although it
should be noted this is mostly due to a weak Thursday performance
and that this is still far better than the S&P 500.
First Trust Amex Biotechnology Index Fund (
First Trust's entrant in the biotech market tracks the Amex
biotechnology Index, utilizing an equal weight technique for its
approach. The fund is more expensive at 60 basis points a year
while volume and AUM are respectable at 50,000 shares a day and
AUM of $200 million, although obviously less than others on the
Once again, large caps make up a small portion, just 30% of
assets, while small and micro caps make up a plurality of assets.
Top holdings include the aforementioned
, as well as
, each of which make up, on average, 6% of the fund.
FBT is down just 30 basis points in the past five days, easily
beating out the S&P 500 in the same time frame while also
possessing a Zacks ETF Rank of 2 or 'Buy' (see
Three Defensive ETFs for a Bear Market
Market Vectors Biotech ETF (
The least popular of the bunch-but still with a decent level
of assets-is BBH a fund from Van Eck that tracks the Market
Vectors US Listed Biotech 25 Index. The ETF has over $140 million
in AUM and daily volume of about 30,000 shares, while it is also
a lost cost pick with expenses of 35 basis points a year.
This is the only large cap centric fund on the list as it has
over 55% of assets in that level and just 14% in small caps or
micro caps. Additionally, it is somewhat concentrated from an
individual security perspective with
combining to take up about 30% of assets in this fund which only
holds about 25 other stocks to begin with.
In this relatively short time period, BBH has been the best
performer of the group adding about 2.4%. Probably, the fund was
buoyed by its large cap focus when compared to the other choices
in the space over the past week.
Long Term Outlook
While these four ETFs have managed to hold up in the face of
extreme selling pressure, investors should note that the outlook
for the space is very mixed. Current Zacks ETF Ranks range from
'Buy' to 'Sell' across the space, so there could be some
volatility in this market.
This could be especially true as the impact of the Affordable
Care Act is better known and the result of new policies regarding
drug availability, patents, and 'biosimilars' truly hits the
Yet while the long term impact may be cloudy, the short-term
is apparently quite bullish-at least relatively speaking-for this
overlooked sector, suggesting it could be a decent play during
this crisis environment as more fiscal cliff negotiations get
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AMGEN INC (AMGN): Free Stock Analysis Report
MKT VEC-BIOTECH (BBH): ETF Research Reports
FT-AMEX BIOTEC (FBT): ETF Research Reports
GILEAD SCIENCES (GILD): Free Stock Analysis
ISHARES NDQ BIO (IBB): ETF Research Reports
SPDR-SP BIOTECH (XBI): ETF Research Reports
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