Drug maker - Biogen Idec (BIIB) – has seen a huge rally in its share price after it announced that the stock would be added to the mega cap index after market close on Friday, March 21. The stock scaled a new 52-week high of $358.89 yesterday, climbing about 8% over the past three trading sessions.
The company will replace American Electric Power Co. (AEP) in the S&P 100 index. Biogen’s addition came as no surprise as the biotech firm has given a stellar performance over last year, jumping 88%. Plus, it is one of the largest and most stable companies in the S&P 500 index (read: Why It Is Time For Mega Cap ETFs).
The move follows the company’s profitable results for the fourth consecutive quarter, one of the major criteria to be eligible for the S&P 100 index. Further, Biogen currently has a market capitalization of $82.74 billion, much higher than $4.6 billion requirement for the inclusion of stock in the mega cap index.
Following the inclusion of BIIB as an S&P 100 member, the largest ETF in the space – iShares S&P 100 ETF (OEF) – tracking the S&P 100 index would also add Biogen to its roster. As such, investors could easily take advantage of this change by focusing on OEF (see: all Large Cap ETFs here).
OEF in Focus
The fund is a mirror image of the index and currently holds 101 stocks in its basket. Apple (AAPL), Exxon Mobil (XOM) and Google (GOOG) occupy the top three positions with a combined 12% share. From a sector look, the product is tilted toward information technology with one-fourth share while financials, healthcare and consumer staples round off to the next three spots.
The ETF has amassed $3.9 billion in its asset base and charges 20 bps in fees a year. Volume is solid as it exchanges more than 868,000 shares per day on average. The fund has delivered flat returns so far this year but has a Zacks ETF Rank of 2 or ‘Buy’ rating with ‘Medium’ risk outlook. This suggests that the fund would outperform its peers in the coming months.
This is especially true as the latest comment from the Fed about interest rates hike sooner than expected could provide a boost to OEF. Further, as per iShares research, while smaller companies perform better during an accommodative monetary period, large and mega-cap stocks outperform in the higher real interest rate environment (read: Top Ranked Large Cap Growth ETF in Focus: FTC).
Currently, a few ETFs other than health and biotech include Biogen in their top 10 holdings. Some of these funds are PowerShares Dynamic Large Cap Growth Portfolio (PWB), First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) and Huntington US Equity Rotation Strategy ETF (HUSE).
The changes would be modest for the ETF world, as the inclusion of BIIB in the S&P 100 index will not increase much choices in the space for investors seeking a broad exposure and a concentrated play on the stock. However, OEF is considered a nice play in the current taper-ridden world, providing diversified exposure to investors.
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