Exchange traded funds following the biotechnology sector are up as much as 20% this year to handily outperform the S&P 500 on a favorable outlook for the drug industry and M&A speculation.
Despite the lingering Eurozone debt crisis and signs of weakness in housing and employment data “there are some things that are actually working,” says Josh Brown at the Reformed Broker blog.
“If you look you look at the ETFs that own all the biotechs, they’re all making 52-week highs and all-time highs in some cases,” Brown remarked. “I think that’s a really interesting way to look at it and say these companies are not cyclical, this is a secular story. The [baby] boomers want to live forever and they’re going to spend as much money as they can trying to do that.” [Biotech ETFs for an M&A Boom]
Brown in an email said his firm Fusion Analytics is long XBI, the biotech ETF. The sector fund tracks an equal-weighted index, so it has a tilt to smaller-cap stocks relative to its ETF peers.
The Dow Jones Biotechnology Index hit an all-time high this month and the sector has been among the few to weather the sell-off, writes Matt McCall at Investopedia.
“The combination of new drug approvals by the FDA and the speculation of more mergers have been the catalysts behind the recent outperformance. There is no reason to doubt that this action will end anytime soon,” he said.
SPDR S&P Biotech
- Josh Brown