For most of this year biotechnology exchange traded funds have been among the most beloved and top-performing sector ETFs. The recent U.S. government shutdown led to some unexpected retrenchment in a sector previously hailed for proving impervious to macro shocks.
While past performance is never indicative of future results with biotech or any other ETFs, “we believe this is one of those times where the fundamentals and valuation traits of their holdings suggest investors might still want to consider ETFs with high biotechnology exposure,” said S&P Capital IQ in a new research note.
S&P Capital is bullish on some of biotech’s biggest names, including Amgen (AMGN), which reports quarterly results after the close of U.S. markets Tuesday. Amgen garners a four-star rating from S&P Capital IQ. [A Biotech Bounce?]
Rivals Celgene (CELG) and Gilead Sciences (GILD) carry five-star ratings from S&P Capital IQ. In each case, these companies have received approval of key drugs and made their own acquisitions to boost their pipelines, according to the research firm.
Those stocks along with Biogn Idec (BIIB) comprise biotech’s “Big Four” and they loom large in cap-weighted biotech ETFs like the iShares Nasdaq Biotechnology ETF (IBB) . IBB, with almost $4 billion in assets under management, is rated marketweight by S&P Capital IQ.
In order, Biogen, Celgene, Gilead and Amgen are IBB’s top four holdings combining for over 34% of the ETF’s weight. Currently trading just over $207, IBB would need to run to the $214 area to reclaim its pre-shutdown highs. The fund is still up nearly 46% this year. [Biotech ETF Sell-Off Could be Just a Blip]
Biotech’s Big Four also dominate the Market Vectors Biotech ETF (BBH) . BBH is far smaller than IBB with $435.7 million in assets, but the Market Vectors offering has seen rapid growth this year, hauling in $194 million of its current AUM total.
BBH has also slightly outpaced IBB with a year-to-date gain of 46.7%. In order, Gilead, Amgen, Celgen and Biogen combine for almost 42% of BBH’s weight. Alone, Gilead is 14.1% of BBH’s weight. S&P also rates BBH market weight.
BBH currently trades around $81.70 and needs to get back to $84 to reclaim its pre-shutdown high. BBH charges 0.35% per year while IBB charges 0.48%.
Market Vectors Biotech ETF
- Health Care Industry