Lately, investors have begun to move away from sectors which
offered higher dividends with lower risk towards risk prone
sectors. In fact, some low risk investors who were playing a safe
game in the bond markets have also started to give up on fixed
income. This essentially signifies a move from sectors such as
utilities and real estate to the likes of consumer discretionary,
financials and biotechnology stocks.
The Healthcare sector, and biotechnology in particular, has been in
the limelight in 2013. During the first half of this year,
biotechnology funds have posted an impressive performance with the
momentum expected to sustain the segment for the rest of the year.
For a while there was a shallow pullback in both August and
early October, but the sector seems to be back on track once more
Top ETFs of the First Half of the Year
In fact, biotech as a sector has shown high growth and high beta
outperforming the broader markets. With ever-increasing healthcare
spending and an insatiable demand for new drugs, the biotechnology
sector looks poised for good growth going forward.
Furthermore, the U.S. biotech sector represents an attractive
investment opportunity thanks to increased M&A activity. This
helped the sector to be one of the top performers in 2012 and the
trend continues this year.
"There has been a lull in M&A over the past year, but
everything picked up over the summer with the recently agreed upon
deal between Amgen and Onyx," said Steve Silver, a biotech equity
analyst at S&P IQ (Read:
Biotechnology ETF Investing 101
The Risks Involved
Though investing in this sector looks alluring, the risk here is
huge. The securities in this sector are largely subject to
regulatory approval from the Food and Drug Administration (FDA). If
a company gets a drug approved by the FDA, its stock may gain
pretty well but any regulatory failure may weigh heavily on the
Ways to Benefit?
Investing in the biotechnology sector has proven to be a safe
choice for investors who can endure volatility. In fact, with an
aging population, the sector is poised to benefit. At this time
investing in Biotech ETFs may be a smart move for investors.
The bullish fundamentals of the sector make it important to find a
top ranked pick in this segment. In order to do this, investors can
look at the Zacks ETF Rank and find the top biotech ETF (read:
Play Surging Health Care with These Small Cap
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, and
style box or asset class (Read:
Zacks ETF Rank Guide
Our proprietary methodology also takes into account the risk
preferences of investors. ETFs are ranked on a scale of 1 (Strong
Buy) to 5 (Strong Sell) while these also receive one of the three
risk ratings, namely, Low, Medium or High.
The aim of our models is to select the best ETF within each risk
category. We assign each ETF one of the five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk (see
more in the
Zacks ETF Center
For investors seeking to apply this methodology to their portfolio
in the Biotechnology sector, we have taken a closer look at the top
ranked BBH. This ETF, with a Zacks ETF Rank of 1 or 'Strong Buy'
(see the full list of
), is detailed below.
BBH in Focus
Launched in December 2011,
Market Vectors Biotech ETF (
is a passively managed fund designed to track the performance of
the Market Vectors U.S. Listed Biotech 25 Index. The fund normally
invests at least 80% of its total assets in securities that
comprise the fund's benchmark index.
The index includes small and medium-capitalization companies and
foreign companies that are listed on a U.S. exchange. Since
inception the product has amassed $436.6 million in assets.
With holdings of 26 stocks, the fund is highly concentrated in the
top 10 holdings which account for about 65% of its total assets. In
terms of market cap levels, large cap stocks take almost a 64%
share in the fund while mid-caps take 32% and small-cap securities
share the rest. Style-wise, BBH is tilted more towards growth
stocks, while a thin share is taken by value stocks.
From an individual holdings point of view, the top three are
Gilead Sciences Inc., Amgen Inc. and Celgene Corp. with as asset
share of 11.40%, 10.28% and 7.31%, respectively.
In terms of industry exposure, almost 90% of assets are allocated
to biotechnology while the rest are taken up by pharmaceuticals
3 Impressive Biotech ETFs Crushing the Market
Given its average trade size, the product is not as popular as its
counterparts as it trades in an average daily volume of 108,600
shares a day. The fund is easy on the pocketbook though, charging
investors 35 bps in fees which is lower than the category average
of 46bps (find all
Health Care ETFs
While BBH may not take the top spot in terms of AUM and trading
size, in terms of performance it has beaten many of the titans in
the category. BBH has given sturdy returns of about 44.6% on a
year-to-date basis and over 50.6% in the trailing one-year period
Is the Biotech Sector Still a Market Leader?
The Bottom Line
The biotechnology sector has been a strong performer so far in 2013
and analysts opine that the trend may continue for the rest of the
year. This could prove to be especially true if this earnings
season is a good one, as it would erase some of the shakiness
investors have seen lately in the space, and suggest that another
rally is at hand for BBH.
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AMGEN INC (AMGN): Free Stock Analysis Report
MKT VEC-BIOTECH (BBH): ETF Research Reports
CELGENE CORP (CELG): Free Stock Analysis Report
GILEAD SCIENCES (GILD): Free Stock Analysis
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