Positive investment implications are resulting from the novel coronavirus pandemic, including a nice run for healthcare exchange-traded funds (ETFs).
Whether it’s been the race to develop a Covid-19 vaccine or companies boosting testing capabilities, healthcare ETFs are enjoying plenty of tailwinds this year – until recently. A sector that’s known for scuffling in presidential election years, particularly biotechnology, is showing signs of wear.
Adding to the near-term malaise is apparent frustration regarding when a coronavirus vaccine will be available. It’s unlikely that will happen before Election Day or by the end of this year. Of course, that timeline is fluid. Any good news on that front will likely rejuvenate healthcare ETFs.
For investors willing to endure the near-term Covid-19 wranglings and possible electoral headwinds, here are healthcare ETFs with strong prospects:
- First Trust NYSE Arca Biotechnology Index Fund (NYSEARCA:FBT)
- ARK Genomic Revolution ETF (CBOE:ARKG)
- Global X Telemedicine & Digital Health ETF (NASDAQ:EDOC)
Healthcare ETFs: First Trust NYSE Arca Biotechnology Index Fund (FBT)
The First Trust NYSE Arca Biotechnology Index Fund is one of the largest biotechnology ETFs. It had plenty of fun earlier this year as investors fawned over assets with leverage to the coronavirus vaccine race.
Truth is, many of FBT’s 30 holdings aren’t directly involved in Covid-19 vaccine development or testing. That’s not an issue for the fund over the long haul. Many of its holdings are involved compelling biotech niches that will thrive after the virus is vanquished.
The ETF’s expense ratio is 0.35% per year, or $35 on a $10,000 investment.
Over the near-term, FBT is encountering political headwinds. However, investors shouldn’t be scared because the NYSE Arca Biotechnology Index, FBT’s benchmark, has a history of trading higher after Election Day, regardless of the outcome. Investors considering FBT now ought to hold it for a year after Election Day, assuming history repeats.
“During the last four presidential elections (2004, 2008, 2012 and 2016), biotechnology stocks performed poorly heading into election day. On average, the NYSE Arca Biotechnology Index had a -6.4% return during the prior 2 months,” according to First Trust. “However, biotech stocks also rebounded nicely following these elections, regardless of which candidate was elected. While Democratic and Republican presidential candidates split these four elections evenly, the average return 2 months after election day was 4.9%, and the average return 12 months after election day was 34.6%.”
ARK Genomic Revolution ETF (ARKG)
Actively managed, the ARK Genomic Revolution ETF is a marvel among healthcare ETFs. It’s 2020 performance proves as much as the fund is higher by 70.53%, even though many of its components aren’t directly engaged in the fight against Covid-19. That’s an encouraging sign because it indicates ARKG can be rewarding after the virus is defeated.
The fund’s expense ratio is 0.75% per year.
The outlook for ARKG is bright because the fund, though focused, addresses exciting, high-growth healthcare markets such as CRISPR, precision medicine and targeted therapeutics.
“ARK Invest estimates that by 2024 therapeutic pipelines and tool providers should generate hundreds of billions of dollars in new revenue and trillions in new market capitalizations as they transition to the genomic age,” according to the issuer.
Assuming targeted therapies can reduce drug trial failure rates by a mere 10% and cut trial times by 25%, returns for related companies could triple, ARK notes. That implies massive, long-term upside potential for ARKG.
Global X Telemedicine & Digital Health ETF (EDOC)
There’s a reasonable chance many investors have heard of Teladoc (NYSE:TDOC) and the company it’s merging with – Livongo Health (NASDAQ:LVGO). Those are two of the big names in the telemedicine field, which is scorching hot this year.
The Global X Telemedicine & Digital Health ETF is the first ETF addressing this healthcare segment and EDOC is a story unto itself. This healthcare ETF debuted on July 29 and had $321 million in assets under management as of Sept. 11. That’s an absolutely stellar start for any new ETF.
The fund’s expense ratio is 0.68% per year.
EDOC, which tracks the Solactive Telemedicine & Digital Health Index, is clearly getting a lift from the pandemic and the need for patients to virtually connect with doctors. Good news: Telemedicine, much like fintech, e-commerce and cloud computing, was growing prior to Covid-19. The pandemic is merely hastening that growth on a more condensed timeline.
As a result, EDOC is positioned for big-time growth regardless of the coronavirus because it addresses a disruptive, lucrative market segment.
“The market for these technologies (digital health and telemedicine) reached an estimated $175 billion in 2019 and is expected to grow to over $657 billion by 2026,” according to Global X research.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.