Tag Archives: biotechnology

Ill At Ease With Biotech? Prescribing #1 Healthcare ETFs

The recent carnage in biotech investing seems more vicious than anticipated. This hot corner of the broad U.S. healthcare market has seen many a correction before, but none seemed as rigorous as it looks now. The recent rout was instigated merely by a tweet – by presidential candidate Hillary Clinton. Her tweet raised concerns over the over pricing on life-saving drugs. Questions over biotech pricing came on the heels of a 5,455% price hike (in about two months) of a drug called Daraprim, used to treat malaria and toxoplasmosis. This gigantic leap in pricing action was taken by a privately held biotech company Turing Pharmaceuticals (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet ). Pricing issues in the biotech space has long been a concern. On the whole, branded drug prices underwent a rise of about 14.8% last year, as per research firm Truveris. There are several other drugs namely cycloserine, Isuprel, Nitropress, and doxycycline that have seen enormous price hikes this year, per the source. This along with overvaluation concerns led to a bloodbath in this otherwise soaring sector last week. In fact, growing pains for biotech investing led the biggest related ETF iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) to incur the largest weekly loss in seven years. Plus, investors should note that biotech stocks underperformed the broader market during the last four election cycles, as noted by Barrons.com . Barrons’ analysis shows that the broader market indices including S&P 500, Dow Jones and NASDAQ composite gained 11%, 8%, and 18%, respectively, on average against 15% loss incurred by the NASDAQ Biotech index during last four election phases. In such a scenario, it is wise to take some rest off biotech stocks and ETFs, and instead spin your attention toward the more stable but equally promising broader healthcare ETFs (read: Guide to Inverse & Leveraged Biotech ETF Investing ). Why Broader Healthcare? The broader healthcare sector is also loaded with potential. A whirlwind of mergers and acquisitions, promising industry fundamentals, plenty of drug launches, growing demand in emerging markets, ever-increasing healthcare spending and Obama care play major roles in making it a lucrative bet for the long term. Moreover, unlike biotech, healthcare ETFs are relatively defensive in nature and do not completely let investors down even in a broader market sell-off. In the latest biotech tumult, when ETFs like the SPDR Biotech ETF (NYSEARCA: XBI ) , the ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) and the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ) retreated in the range of 6% to 8% on September 25, most broader healthcare ETFs lost in the range of 2% to 3%. As a result, Zacks Rank #1 (Strong Buy) healthcare ETFs could be in watch ahead, at least until the penchant for biotech investing returns. Investors should note that the following healthcare ETFs hold a Zacks ETF Rank #1. PowerShares S&P SmallCap Health Care Portfolio ETF (NASDAQ: PSCH ) This ETF has delivered a spectacular performance in the broad healthcare world, returning nearly 25% so far this year and losing just 2.4% in the last one month overruling the biotech woes (as of September 25, 2015). The fund offers concentrated exposure to small cap healthcare securities. It holds 74 securities in its basket, with each security holding less than 4.61% share. From an industry perspective, about one-third of the portfolio is allotted toward healthcare equipment and supplies, followed by healthcare providers and services (28.3%) and pharmaceuticals (15.7%). The ETF has amassed $268.5 million in assets and trades in a lower volume of about 40,000 shares per day, while charging a relatively low fee of 29 bps a year. The fund continues to hold a Zacks ETF Rank #1 with a High risk outlook. SPDR S&P Health Care Equipment ETF (NYSEARCA: XHE ) This product looks to track the S&P Health Care Equipment Select Industry Index. Holding 73 stocks in its basket, each security accounts for less than 1.73% of total assets. This is often an overlooked fund with AUM of $51 million and average daily volume of about 5,000 shares. From an industry look, healthcare equipment accounts for over three-fourth of the portfolio while healthcare supplies have a considerable allocation. The product charges 35 bps in annual fees. XHE gained about 18.6% in the last one year and lost 4.2% in the last one month. It was also upgraded from Zacks Rank #3 (Hold) to Rank #1 in our latest Rank updates. iShares U.S. Medical Devices ETF (NYSEARCA: IHI ) This ETF follows the Dow Jones U.S. Select Medical Equipment Index with exposure to medical equipment companies. In total, the fund holds 52 securities in its basket with major allocations going to Medtronic Plc (NYSE: MDT ) and Abbott Laboratories (NYSE: ABT ) at 14.5% and 710.7%, respectively. The fund has been able to manage about $708 million in its asset base while volume is moderate at about 100,000 shares per day on average. It charges 45 bps in annual fees and expenses. This ETF was also upgraded from a Zacks ETF Rank #3 to Rank #1 recently. The product added 12.6% in the last one year and could be a nice pick for Q4. In the last one month, the fund lost 5.8% which was much lower than double-digit losses incurred by biotech ETFs. Link to the original article on Zacks.com

This Biotech ETF Has Thus Far Delivered On Its Potential

Summary The ALPS Medical Breakthroughs ETF – a fund focused on companies in late stage clinical trials – has jumped over 20% YTD, far outperforming small cap & biotech counterparts. This ETF looks for companies with at least one drug in stage II or stage III clinical trial. The fund’s managers have demonstrated a solid albeit short track record over the ETF’s nine month history outperforming small cap, biotech and pharma indices. This ETF was hit especially hard during this week’s rout in biotech. At the beginning of the year, I profiled the ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ). It’s a fund that is trying to carve out a unique niche in the biotechnology space by investing in those companies engaged in late stage clinical trials. By their very nature, these companies and the ETF itself are a high risk, high reward proposition but in its brief nine month history the fund has been able to deliver on its potential. First off, let’s review the investment criteria of the fund… To qualify for this ETF the company must have at least one drug in either stage II or stage III clinical trial. Often times these companies are very small (currently about 70% of fund assets are devoted to either small cap or micro cap businesses) and generate little if any revenue. Their upside is captured in either the success of the drug in trial or the possibility of being acquired by a larger company. Since its inception at the beginning of the year the fund has delivered against just about any benchmark you can think of. While the fund has whipsawed around and experienced the high degree of volatility that one would expect from a small cap biotech ETF the fund has managed to deliver outsized returns in its short existence. Consider its performance against the biotech indices… SBIO Total Return Price data by YCharts Biotechs in general have performed well this year beating the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) by a large margin and more than doubling up on the SPDR Biotech ETF (NYSEARCA: XBI ). The ALPS ETF does have a roughly 50-50 weighting of both biotechs and pharmaceutical companies but this chart demonstrates how this ETF is handily beating both the SPDR S&P Pharmaceuticals ETF (NYSEARCA: XPH ) and the iShares U.S. Pharmaceuticals ETF (NYSEARCA: IHE ) for the pharma sector as well. SBIO Total Return Price data by YCharts Measuring against the small cap ETFs (the iShares Core S&P Small-Cap ETF (NYSEARCA: IJR ) and the Vanguard Small Cap ETF (NYSEARCA: VB )) yields similar results. SBIO Total Return Price data by YCharts Perhaps a fairer comparison comes when you look at this ETF against the ETF that debuted just a couple of weeks earlier – the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ). SBIO Total Return Price data by YCharts I say a fairer comparison instead of a good comparison because while the two ETFs share a similar strategy of going after clinical trial companies the stocks they target are quite different. For example, the ALPS ETF typically invests in nothing with a market cap greater than $5B. In comparison, the BioShares ETF has over half of its assets in companies with market caps greater than $10B. Perhaps it’s not surprising that the BioShares ETF has performed much more in line with its counterparts. It’s not all smooth sailing though with biotechs though. Biotechs in general lost roughly 10% of their value this past week alone giving shareholders a first hand look at the risks involved in these emerging companies. Putting further pressure on biotechs was the news that Hillary Clinton is looking to rein in prescription drug costs and place a monthly cap on some premiums. This is campaign season and everything we hear from politicians at this point should probably be taken with a whole shaker of salt but potential revenue limits could be a consideration going forward. Conclusion Nine months is a very short time to be judging performance but it’s encouraging to see how well the fund managers have been able to outperform in such a challenging environment. The short track record has done wonders in attracting investment to the fund as it already has $160M in AUM – far more than the roughly $28M managed by the BioShares ETF. An overall expense ratio of just 0.50% also helps its cause. The focus on companies engaged in later stage clinical trials offers greater intrigue. By stage II or III, the drug has cleared its initial hurdles and stands a much better chance of making it to market and that helps remove a level of risk and uncertainty. However, we have many examples of what happens to a company’s stock if its drug fails in trial. While the home run potential is there with many of these companies there’s also a huge downside risk if the drug fails to get approved. So far, the initial results are encouraging as the managers have had an albeit small degree of success in picking the right stocks. I like the promise of this ETF, although I’m also waiting to see how the managers perform over a longer time frame.

Guide To Inverse And Leveraged Biotech ETF Investing

Biotech investing has been on a see-saw ride of pains and gains this year. This piping hot corner of the broad U.S. health care market can easily be termed as one of the super performers in the last five years and can be an intriguing bet for investors with a long-term view. The biggest biotech ETF, the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ), gained over 285% during this frame. Last year too, this high-growth sector delivered a stellar 34% return and outdid all the other sectors. The Fed’s super-easy monetary policy, a whirlwind of mergers and acquisitions, promising industry fundamentals, plenty of drug launches, FDA approvals for the highlyawaited drugs, ever-increasing demand in emerging markets, surging health care spending and Obama care wrote the success story at biotech. However, the space has long been guilty of overvaluation; with even the Fed chair Yellen pointing to it last year. As a result, the space succumbs to a correction just as the broader market hits any growth-related bump and a risk-off trade sentiment takes over. This well explains why the biotech space has been floundering in the recent global market rout instigated by a Chinese market crash. If this was not enough, Hillary Clinton, who is a presidential candidate, recently raised concerns about the over pricing on life-saving drugs on Twitter. This tweet came on the heels of a 5,455% price hike (in about two months) of a drug called Daraprim, used to treat malaria and toxoplasmosis. This apparently eccentric pricing action was taken by a privately held biotech company Turing Pharmaceuticals. On the whole, branded drug prices underwent a rise of about 14.8% last year, as per research firm Truveris. There are several other drugs namely cycloserine, Isuprel, Nitropress, and doxycycline that have seen enormous price hikes this year, per the source. As a result, the drumbeat of losses for biotech stocks resumed in full volume on apprehensions of stringent government regulation on pricing matters. What’s in Store? No wonder, sectors as important and sensitive as biotech and pharmaceutical should be in talks prior to the election season. Barrons.com notified that biotech and pharma stocks underperformed the broader market during the last four election cycles when comparing figures 3 months before to the primaries and 3 months after the elections (read: The Comprehensive Guide to Biotech ETFs ). Barrons’ analysis shows that the broader market indices including S&P 500, Dow Jones, and NASDAQ composite gained 11%, 8%, and 18%, respectively, on average against 15% and 1% loss incurred by the NASDAQ Biotech index and NYSE Arca Pharmaceutical Index, respectively during last four election phases. Thus, like several analysts we too believe that the biotech space will likely remain flippant. However, the space should soar once these doubts clear up given the strong fundamentals and a compelling valuation especially after the recent sell-off. Till everything settles, investors might intend to choose products with short-term notion. And what could be better options than inverse and leverage biotech ETFs to accomplish this notion? Due to their compounding effect, investors can enjoy higher returns for a very short period of time. Holding the product for long could lead to extreme losses. Below, we have highlighted three ETFs in each case – both for bear and bull markets – that could deliver astounding gains, depending on the biotech market trend, easily crushing the broader market. Bear Biotech ETFs – Inverse Leveraged These products would be apt for the present beaten-down market environment. ProShares UltraPro Short NASDAQ Biotechnology ETF (NASDAQ: ZBIO ) Leveraged Factor: (-)3x Benchmark Index : NASDAQ Biotechnology Index The index is a modified capitalization weighted and includes biotech or pharma securities listed on the NASDAQ. The ETF has amassed about $7.7 million in its asset base while charges 95 bps in fees per year from investors. The fund trades over 50,000 shares a day on average and added 29% in the last three months (as of September 24, 2015). Direxion Daily S&P Biotech Bear 3x Shares (NYSEARCA: LABD ) Leveraged Factor: (-)3x Benchmark Index : S&P Biotechnology Select Industry Index The fund has amassed about $18.7 million so far and trades in volumes of about 275,000 shares a day. This product also charges 95 bps in fees and added 19.5% in the last three months. ProShares UltraShort Nasdaq Biotechnology ETF (NASDAQ: BIS ) Leveraged Factor: (-)2x Benchmark Index : NASDAQ Biotechnology Index This $171.6-million ETF trades in volumes of about 750,000 shares a day and charges 95 bps in fees. The fund surged over 21% in the last three months. Bull Biotech ETFs – Leveraged These products would suit investors on a biotech market recovery. ProShares UltraPro NASDAQ Biotechnology ETF (NASDAQ: UBIO ) Leveraged Factor: 3x Benchmark Index : NASDAQ Biotechnology Index This $37-million ETF trades in volumes of about 275,000 shares a day and charges 95 bps in fees. The fund lost over 39% in the last three months. Direxion Daily S&P Biotech Bull 3x Shares ETF (NYSEARCA: LABU ) Leveraged Factor: 3x Benchmark Index : S&P Biotechnology Select Industry This $112-million ETF trades in volumes of about 600,000 shares a day and charges 95 bps in fees. The fund shed over 42% in the last three months. ProShares Ultra Nasdaq Biotechnology ETF (NASDAQ: BIB ) Leveraged Factor: 2x Benchmark Index : NASDAQ Biotechnology Index This $786.1-million ETF trades in volumes of about one million shares a day and charges 95 bps in fees. The fund was down about 27% in the last three months. Link to the original link on Zack.com