Perhaps the most impressive secular story of 2012 has been the
performance of the biotechnology sector. Spurred by a spate of
new drug approvals, positive trial data, and mergers and
acquisitions activity, the biotech group has proven immune to
U.S. and European macroeconomic headwinds.
Beyond individual biotech stocks, ETFs tracking the sector
have also impressed in a big way. Year-to-date, the iShares
NASDAQ Biotechnology ETF (NASDAQ:
IBB
) - the largest biotech ETF by assets - is up almost 28 percent.
In the same time frame, the First Trust NYSE Arca Biotechnology
Index Fund (NYSE:
FBT
) has jumped nearly 38 percent while the SPDR S&P
Biotechnology ETF (NYSE:
XBI
) trumps both IBB and FBT with a gain of 40.4 percent. All three
currently reside at or near all-time highs.
Focusing on those ETFs has obviously proven rewarding for
investors, but there is another option to consider. The
PowerShares S&P SmallCap Health Care Portfolio (NASDAQ:
PSCH
) has been an unheralded standout among small-cap ETFs in 2012
with a year-to-date gain of over 15 percent.
PSCH tracks the S&P SmallCap 600 Capped Health Care Index,
which according to PowerShares, is a "subset of the S&P
SmallCap 600 Index." The S&P SmallCap 600 Index can be
accessed via the iShares S&P SmallCap 600 Index Fund (NYSE:
IJR
). That ETF devotes almost 11.5 percent of its weight to health
care names, many of which are found in PSCH. The pure play on
health care small-caps, however, has proven to be the better
option as PSCH has outperformed IJR by 600 basis points
year-to-date.
PSCH is by no means perfect. Home to $122.5 million in assets
under management, the 26-month-old ETF is large enough to survive
and its 0.29 percent annual expense ratio is reasonable. The
knocks on PSCH would include the fact that its average daily
volume is less than 18,500 shares and that options are not
available on the fund.
Additionally, PSCH's status as a small-cap fund could make it
vulnerable should investors decide that small-caps, regardless of
sector, are not worth the risk. On a related note, it should be
noted that PSCH is not 100 percent allocated to small-caps as
mid-cap growth stocks account for about 20 percent of the fund's
weight.
PSCH also is not a pure-play biotech ETF as it also features
medical device, diagnostics, and life science supply companies
among its holdings. The ETF's top holdings include Questcor
Pharmaceuticals (NASDAQ:
QCOR
), Salix Pharmaceuticals (NASDAQ:
SLXP
), Cubist Pharmaceuticals (NASDAQ:
CBST
), Align Technology (NASDAQ:
ALGN
) and Haemonetics (NYSE:
HAE
). This quintet represents approximately 23 percent of PSCH's
total weight.
In other words, investors looking for perceived safety in the
biotech space with names such as Amgen (NASDAQ:
AMGN
) or Gilead Sciences (NASDAQ:
GILD
) would do well to avoid PSCH.
That said, the PowerShares offering does offer utility for
investors looking for small-cap exposure. Additionally, investors
holding a more conservative health care ETF such as the Health
Care Select Sector SPDR (NYSE:
XLV
) could pair that position with PSCH to bolster access to growth
names.
For more on biotech ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.