For the five-year period ending Dec. 31, 2015, the average number of healthcare exchange-traded funds appearing among each year’s 10 best non-leveraged sector ETFs was three. That statistic underscores the strength of the healthcare sector for much of the current bull market — and a primary part of that strength has come from biotech stocks.
However, biotech started betraying the healthcare sector and its related ETFs last year.
While diversified healthcare ETFs are sporting small year-to-date gains or modest losses, and some healthcare industry ETFs are thriving, biotech ETFs are still saddled with deep double-digit losses.
That is the bad news. The good news is that while biotech stocks and ETFs might not notch the boffo performances seen in 2013 or 2014, the group has recently been rebounding in impressive fashion.
Tactical investors looking to participate in this biotech rebound while eschewing stock-picking should examine the following ETFs.
Biotech ETFs for the Rebound: BioShares Biotechnology Products ETF (BBP)
Expenses: 0.86% per year, or $86 for each $10,000 invested
What makes the BioShares Biotechnology Products ETF (BBP) an ideal fund for a biotech rebound is focus, which is to say this ETF should applied in tactical fashion, not by investors looking for broad-based, set-it-and-forget-it biotech exposure.
BBP, which debuted in late 2014, carves out a specific niche within the biotech space by focusing only on biotech stocks with a primary product already on the market or one that has already garnered approval from the Food & Drug Administration. The ETF follows the LifeSci Biotechnology Products Index, which held 35 biotech stocks at the end of March, according to issuer data.
In other words, the biotech stocks in BBP are not solely dependent on FDA trial results to jolt the shares higher. BBP’s top 10 holdings combine for about a third of the fund’s weight and include Theravance Biopharma Inc (TBPH), Medivation Inc (MDVN) and Vanda Pharmaceuticals Inc. (NASDAQ:VNDA).
Biotech stocks found in BBP make “everything from antivirals, antibiotics and cancer-fighting medicines to gene therapies, cell-based therapies and enzyme replacement therapies are developed in the biotech sector,” according to BioShares.
Up more than 10% over the past 3 months, or more than triple the performance of the largest biotech ETF — the iShares NASDAQ Biotechnology Index ETF (IBB) — over the same period, BBP charges 0.86% per year, or $86 for each $10,000 invested.
Biotech ETFs for the Rebound: SPDR S&P Biotech ETF (XBI)
Home to about $1.8 billion in assets under management, SPDR S&P Biotech ETF (XBI) is the third-largest biotech ETF on the market. What makes it one of the ideal ways with which to play a biotech rebound is its lack of dependence on the largest biotech stocks as a means of driving price action.
For example, the largest biotech ETF on the market devotes nearly 40% of its weight to the five largest biotech stocks by market capitalization.
On the other hand, no stock garners a weight of more than 3% in XBI and the weighted average market value of the 87 biotech stocks found in the ETF is less than $15 billion.
XBI’s advantages have recently been on display, as the ETF is up nearly 10% over the past three months, more than triple the largest biotech ETF over the same period. Over the past two years, XBI has gained 27% to IBB’s 17%.
However, what is a blessing can also be a burden because XBI reducing exposure to the biggest biotech stocks also makes the ETF vulnerable when biotech stocks retreat. Translation: XBI can fall more than its traditional rivals when biotech stocks slide.
Biotech ETFs for the Rebound: Loncar Cancer Immunotherapy ETF (NASDAQ:CNCR)
As is the case with the aforementioned BBP, the Loncar Cancer Immunotherapy ETF (CNCR) is a biotech rebound play because of its narrow focus on a specific biotech niche — in this case, the lucrative cancer treatments market.
CNCR tracks the Loncar Cancer Immunotherapy Index, which focus on biotech stocks that make products such as checkpoint inhibitors, next generation vaccines and chimeric antigen receptor technologies.
Although it is a focused ETF, not all of the biotech stocks found in CNCR are obscure or sporting small market values. In fact, not all of CNCR’s holdings are even dedicated biotech stocks, as the ETF holds blue-chips such as Dow Jones Industrial Average members Merck & Co., Inc. (MRK) and Pfizer Inc. (PFE).
CNCR holds 31 stocks.
The ETF also shows investors that sometimes a biotech stocks niche is in favor and sometimes it is not. CNCR is off 9.6% since debuting in October 2015, but the ETF is up more than 11% over the past 90 days. CNCR charges 0.79% a year, or $79 per $10,000 invested.
As of this writing, Todd Shriber did not own any of the securities mentioned here.