Stocks were broadly higher to start the second half of the
year as markets rose on strong economic data in a few key
segments of the economy. While many market sectors participated
in the rally, one corner of the market saw especially solid
trading on the day, biotechnology.
This corner of the market saw gains in excess of 3% on the
day-- compared to 1.1% gains for the S&P 500-as some
attempted acquisition news gave a boost to the broad space. The
was a report
Onyx Pharmaceuticals (
was a takeover target of
, which looked to buy the company for $120/share.
While this represented a significant premium over the
company's closing price of $86.82/share on Friday, ONXX clearly
felt that it wasn't enough, as the company rejected the offer.
The news of the rejection helped to boost the stock in Monday
trading though, as ONXX shares were, at time of writing, trading
around the $132/share mark, a gain of over 52% for the
The news also helped to boost a variety of other companies in
the sector as hopes for more merger and acquisition activity in
the space. Thanks to this, many smaller biotech companies also
saw decent gains, while even some of the larger players in the
space were up on the day above what the overall market was seeing
The rejection of the takeover was great news for biotech
as all of these were up significantly on the day. However,
investors should note that due to ONXX's small size it wasn't a
huge component of many biotech ETFs, accounting for less than 6%
of all the products in the space (see
Biotechnology ETF Investing 101
Instead, the main catalyst for the big gains was what the
rejection said about the overall state of the biotechnology
market. Bigger companies are clearly getting more desperate for
new drugs, which could put a variety of small and mid cap firms
with decent pipelines into focus, leading many to bid up stocks
across the space.
For investors who believe that this trend still has some legs,
we have briefly highlighted some of the biggest and most popular
biotech ETFs below. Any of these could be decent picks for
investors seeking to tap into the positive trends in the space
with a lower risk diversified portfolio of biotechnology
iShares Nasdaq Biotechnology ETF (
This is the most popular biotech ETF in the space, with just
under $3 billion in assets under management. Volume is also
solid, coming in at roughly 600,000 shares a day.
The product is cap weighted, so big companies take up a
huge chunk of the exposure, although there are about 120 stocks
in the ETF. The top holding is actually the in-focus AMGN, while
ONXX makes up about 2% of the portfolio (Read
3 Sector ETFs Surviving This Slump
The ETF is up about 3.7% today, and it is now up about 7.4%
over the past five days.
Market Vectors Biotech ETF (
This ETF tracks the Market Vectors US Listed Biotech 25 Index,
holding a small subset of the broad biotechnology sector. The
product has decent volume of about 100,000 shares a day, and has
assets under management of roughly $300 million.
The ETF is also cap weighted, but because it only holds about
two dozen securities, has heavier concentration in the top
stocks. GILD and AMGN both take up over 10.5%, although ONXX does
find its way into the top ten at 4.5% of the total assets.
BBH added about 5.7% in the session, pushing its five day gain
PowerShares Dynamic Biotechnology and Genome (
Another option for investors in the biotech market comes to us
from PowerShares and their PBE. This product has somewhat sparse
volume of just 20,000 shares a day, but it does have a decent
level of assets under management of about $160 million.
The ETF is equal weighted though, so assets are well spread
out among component companies. In fact, no one company makes up
more than 5.5% of assets, while ONXX accounts for just 2.5% of
the fund (also see
Could the Small Cap Healthcare ETF Be a Great
In terms of performance, PBE has added about 4.5% on the day,
pushing its five day gain to just over 7%.
SPDR S&P Biotech ETF (
The last option on this list is XBI from State Street, a fund
that tracks the S&P Biotechnology Select Industry Index. The
product has decent volume of about a quarter million shares a
day, while its assets under management is also solid at $860
This is also an equal weighted ETF, spreading out assets
across roughly 57 firms. No single company accounts for more than
2.5% of the portfolio, and ONXX takes up just 2% of the total
The fund is up about 5.4% on the day, while its five day
performance comes in at 7.7%.
Biotechnology has been a strong long term performer, buoyed by
a number of positive trends in the space. In particular, there
has always been some hope about robust M&A activity taking
place, boosting demand for small and mid cap stocks in the space
Gilead Puts biotech ETFs in Focus
We may be seeing a new wave of this take place now, as
evidenced by the recent news between ONXX and AMGN, and
especially since Onyx rejected the lofty bid. This suggests that
a big premium will need to be paid on these firms, meaning that
the future is increasingly bright for small and mid cap biotechs
and the space may be worth buying in ETF form.
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Author is long PBE.
AMGEN INC (AMGN): Free Stock Analysis Report
MKT VEC-BIOTECH (BBH): ETF Research Reports
ISHARES NDQ BIO (IBB): ETF Research Reports
ONYX PHARMA INC (ONXX): Free Stock Analysis
PWRSH-DYN BIO (PBE): ETF Research Reports
SPDR-SP BIOTECH (XBI): ETF Research Reports
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