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Inside Biotech ETFs: Can the Run Continue? - ETF News And Commentary
Biotechnology firms are among the fasting growing companies in the health care world. With the U.S. market soaring, a high growth and high beta sector like biotech is performing remarkably well, clearly outpacing the overall market and broader health care sector (read: 3 Impressive Biotech ETFs Crushing the Market ).
This is primarily attributable to increased mergers and acquisitions, promising new drugs and their approval, ever-increasing health care spending, and an insatiable demand for new drugs.
Mergers & Acquisitions and New Products
Recent mergers and acquisition talks/rumors from companies like Onyx Pharmaceuticals (ONXX) and Alexion Pharmaceuticals (ALXN) have given a boost to the biotech sector. Onyx has placed itself on the market after turning down an offer from biotech major, Amgen (AMGN) .
Further, the efforts of biotech companies to launch more drugs for various diseases could propel the biotech sector even further in the months ahead.
Another bullish trend seen in the sector is expansion into emerging markets. Several companies whether big or small, are looking to expand their presence in India, China, Brazil and other developing markets.
Moreover, companies like Merck ( MRK ), Amgen, Biogen ( BIIB ), Actavis ( ACT ) and Teva Pharmaceutical ( TEVA ) are eyeing deals for the development of highly lucrative biosimilars, generic versions of biologics.
The biotech sector is also poised to benefit from the impending Obamacare changes. On the one hand, the sector managed to avoid the tax issue of the medical device space, and on the other, many of its new drugs will find a larger base of insured persons across the U.S., theoretically boosting profits (read: Biotechnology ETF Investing 101 ).
These developments are fuelling growth in biotech companies, leading to a rally in their share prices. This is especially true given impressive levels of momentum in the biotech ETFs. In fact, the biotech ETFs have delivered as much as double returns than the broader health care fund ( XLV ) over the past six months.
This suggests that a tilt towards the biotech is definitely a good idea, as these have fought through the shutdown inspired volatility, and are now in prime position to finish out the year on a strong note.
Below, we highlight the top three biotech ETFs that have delivered double-digit returns over the past few months. This trio could be excellent plays for investors who believe that biotech will continue to move upward, and lead the health care world higher in the current growth-focused market (see: all the Health care ETFs here ):
Market Vectors Biotech ETF (BBH)
This fund tracks the Market Vectors US Listed Biotech 25 Index, holding 26 securities in the basket. It has amassed $416.2 million in its asset base and sees good trading volume of nearly 107,000 shares a day. The fund charges a reasonable 35 bps fee per year.
The product is largely concentrated in its top 10 securities at more than 64% of total assets and is tilted toward large cap and growth stocks. Gilead Sciences ( GILD ) takes the top spot at 11.40%, closely followed by AMGN and Celgene ( CELG ) at 10.28% and 7.31%, respectively.
About three-fifths of the portfolio falls under the large cap category while about 72% is classified as growth (read: Bet on This Top Ranked Large Cap Growth ETF ).
The ETF added 3.6% over the past three months and nearly 46.7% in the year-to-date time frame.
PowerShares Dynamic Biotechnology & Genome Portfolio (PBE )
This ETF follows the Dynamic Biotechnology & Genome Intellidex Index. The product has a somewhat low volume of 29,000 shares a day, but a decent level of about $215.3 million in assets under management. The fund charges 63 bps in fees and expenses from investors.
With holdings of 30 stocks, the fund is well spread across various market spectrums with large caps at 40%, small caps at 37% and the rest in mid caps. It also has a tilt toward the growth stocks, while the portfolio is well spread out as each security holds less than 5.7% of the assets in the basket.
The product has added an impressive 49.2% year-to-date and over 6.5% in the trailing three month time frame (read: Top ETFs of the First Half of the Year ).
iShares Nasdaq Biotechnology ETF (IBB)
This fund provides exposure to 122 firms by tracking the Nasdaq Biotechnology Index. With AUM of more than $3.94 billion and average daily volume of about a million shares, this is by far the largest and the most popular ETF in the biotech space. The ETF charges 48 bps in annual fees.
The product has moderate concentration in the top 10 holdings with CELG, GILD and AMGN making up for more than 8% share each. Growth stocks are once again a big part of the portfolio with 80% of the assets (see more in the Zacks ETF Center) .
In terms of performance, IBB returned 5.7% in the trailing three months and nearly 46% in the year-to-date time frame.
These biotech ETFs could be worthwhile and continue their bull run this year as each product currently has a Zacks ETF Rank of 2 or 'Buy' rating. This is especially true given several M&A opportunities, drug approvals and the current market trend towards high growth sectors and away from dividends.
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AMGEN INC (AMGN): Free Stock Analysis Report
MKT VEC-BIOTECH (BBH): ETF Research Reports
GILEAD SCIENCES (GILD): Free Stock Analysis Report
ISHARES NDQ BIO (IBB): ETF Research Reports
PWRSH-DYN BIO (PBE): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
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