Given biotech stocks’ volatile nature, investors need something of an iron stomach to invest in them. One minute a firm is up huge on the promise of a new drug therapy … only to come crashing down when that drugs fails clinical trails or doesn’t receive FDA approval. That “jumpiness” often causes investors in retirement to shun biotech stocks from their portfolios.
However, investors could be making a hue mistake. Biotech stocks and retirement actually make perfect sense together.
The average retirement now lasts around 25 to 30 years. That means retirement investors need to be investing for growth just as much as for income. Over the longer haul, biotech stocks have managed to deliver market-beating performances despite the rollercoaster ride. That makes them perfect as the “growth” engine for retirement investors’ portfolios.
Secondly, biotech stocks are the perfect way for investors to hedge their own healthcare bills. The average retirement investor will spend around $220,000 in healthcare costs not covered by Medicare or other insurance programs. That amount of money is more that some investors have saved in their entire portfolios. The major advances in drug therapies over the last few years have pretty much come strictly from the biotechnology space … meaning biotech stocks are the ones charging — and making — the bulk of that money.
While they can be risky, over the longer term biotech stocks do have a place in retirement portfolios. But how exactly should investors go about adding a dose of biotech stocks to a portfolio? Here’s one stock, one exchange-traded fund (ETF) and one mutual fund to get you started.
Biotech Stocks For Retirement — Amgen (AMGN)
While most investors think of biotech stocks as risky small-cap firms, the truth is there are plenty of companies in the sector bigger than some traditional pharmaceutical companies. That makes these biotechnology firms ideal for retirement investors.
Amgen (AMGN) is one of the best.
As one of biotech’s elder statesmen, AMGN is one of the largest multinational biotech firms, having cut its teeth on a series of innovative drug therapies. Those products — like Enbrel and Neulasta — continue to churn out major amounts of cash for AMGN. In fact, AMGN generates enough cash to pay a 1.8% dividend. That’s something investors probably didn’t expect to find in a biotech stock.
And the innovation continues at AMGN. The firm recently completed phase three clinical trials and plans to sell a new cholesterol fighter for patients who can’t use statin-based drugs like such as Pfizer’s (PFE) Lipitor. Likewise, the biotechnology firm recently received positive results form a new thyroid drug currently in testing.
As for AMGN’s stock, shares remain pretty cheap at forward P/E of just 15. That puts it on par with many other large-cap “regular” pharmaceutical firms that do not have the same sort of robust pipelines.
Biotech Stocks For Retirement — iShares Nasdaq Biotechnology ETF (IBB)
For investors looking to add a broad basket of biotech stocks to their portfolios, the iShares Nasdaq Biotechnology ETF (IBB) is a great choice. The exchange-traded fund (ETF) tracks all the biotechnology and pharmaceutical equities listed on the NASDAQ stock exchange — the dominant place where biotech stocks are found.
That’s currently 121 different biotech firms — including the previously mentioned Amgen as well as smaller clinical-stage biotechnology stocks like Endocyte (ECYT). That diversity provides plenty of coverage in the healthcare sub-sector. However, IBB takes it one step further compared to rival biotech ETFs. IBB also includes many of the life sciences equipment and technology firms. These companies have been making hay as the “arms merchants” to the drug researchers and have enabled many biotechs to produce their healthcare breakthroughs.
That extra “oomph” has also helped IBB return more than 10% annually over the last 10 years, beating the S&P 500 by a wide margin. That sort of profitable long-term performance is exactly what retirement investors need to power their portfolios.
And with $5 billion in assets and 2.5 million shares traded every day, IBB is the most liquid and largest ETF in the sector. And as the biggest ETF in the biotech sector, expenses for IBB are pretty cheap as well. The fund costs just 0.48% — or $48 per $10,000 invested.
Biotech Stocks For Retirement — Fidelity Select Biotechnology Portfolio (FBIOX)
The fund is actively managed and currently holds 214 different biotech stocks. These days, the team at Fidelity have been focusing on large-cap biotech stocks with positive cash flows due to big blockbuster drugs. Manager Rajiv Kaul then adds a dash of faster growing small and mid-cap biotechnology firms that have strong pipelines. That combo provides investors with just the right mix of fast growth as well as stability, making FBIOX a perfect vehicle for retirement investors.
Also making FBIOX a perfect vehicle for-long term portfolios? Its hefty returns. Over the last 10 years, FBIOX has managed to return more than 16% annually. That’s enough to turn $10,000 invested into more than $52,000 over that time. It has certainly earned its Morningstar four-star rating.
Expenses for FBIOX are low for active mutual funds focusing on biotechnology at 0.76%. The initial investment of $2,500 is also pretty low, relative to competing funds.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.