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IPOs Propel U.S. Biotech Despite the Pandemic: 3 Fund Picks

Experts are of the view that U.S. biotech is less susceptible to a rout from COVID-19. They argue that since these companies are still in early-stage development, yet to sell their products, they are somewhat immune to demand shocks.

Furthermore, most of the listings on American bourses so far in 2020 have been from biotech. The space offers a sliver of hope to investors closely following the IPOs. The trend is likely to continue for the rest of the year despite listings from other sectors that are expected to suffer from the coronavirus pandemic.

In the first half of 2020, there were about 184 biotech capital transactions which totaled $26 billion. The figure was 138% in comparison with the same period in 2019. Furthermore, the 34 biotech IPOs which have taken place so far in 2020 have raised more than $6.2 billion.

In comparison, the first six months of last year saw a total of 28 biotech IPOs, with the total sum raised being just $3.1 billion. Such stellar figures indicate that the overall biotech sector has bucked the industry trend amid the pandemic. This is because almost every industry halted public listing when the pandemic struck.

Notably, in the first half of 2020, the Massachusetts biotech sector raised more than two-third of the venture funding it did in the entire 2019. Biotech companies in the state have raised more than $2.1 billion in venture funding so far in 2020.

Given the current scenario, analysts also expect some of the biotech stocks to skyrocket and rake in big gains. These companies have impressive product pipelines which include candidates likely to become blockbuster drugs. Meanwhile, biotech ETFs have been on a tear lately. iShares Nasdaq Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI) and First Trust Amex Biotechnology Index (FBT) have gained 13.2%, 18% and 13.8%, respectively, year to date.

3 Biotech Funds to Buy Now

We have highlighted three biotech mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from bullish circumstances. Moreover, these funds have encouraging three-year returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform their peers in the future.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Biotechnology Portfolio FBIOX fund invests the majority of its net assets in common stocks of companies mostly engaged in the research, development and distribution of biotechnological products. The fund primarily seeks capital growth. The non-diversified fund invests in U.S. and non-U.S. companies alike.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the three-year benchmark is 13.4%. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FBIOX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.72%, which is below the category average of 1.26%.

Janus Henderson Global Life Sciences Fund Class A JFNAX seeks capital growth. The fund invests the majority of its assets in securities of companies that its portfolio managers believe have a life science orientation. The product has a fundamental policy to invest at least a quarter of its assets in securities of companies that are categorized in the life sciences sector.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the three-year benchmark is 12.7%. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

JFNAX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.00%, which is below the category average of 1.26%.

Vanguard Health Care Fund Investor Shares VGHCX seeks long-term capital growth by investing in securities of companies that are engaged in the production and distribution of products and services from the healthcare industry. The fund may invest about half of its assets in non-U.S. stocks.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's return over the three-year benchmark is 9.3%. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VGHCX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.32%, which is below the category average of 1.26%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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