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COVID Biotech ETFs Rise At Fever Pace

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·4 min read
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After outperforming the broad market in 2020, biotech names have had a more subdued year so far. But as with any thematic or sector ETF, portfolio construction and index methodology matters.

Two funds that launched in the midst of the pandemic that are focused on infectious diseases and biological threats to human health have vastly outperformed broader biotech ETFs.

The ETFMG Treatments Testing and Advancements ETF (GERM) is designed to focus on global biotech companies engaged in the testing and treatment of infectious diseases. GERM’s niche focus has been a benefit in terms of performance this year.

Many of the top holdings in the portfolio have been critical players in the vaccination efforts against COVID-19, including top holding Moderna, which makes up nearly 11% of the portfolio.

 

GERM Top 10 Holdings
GERM Top 10 Holdings

Chart courtesy of FactSet

(For a larger view, click on the image above)

 

Moderna’s stock has risen by 294% so far this year, having received emergency use authorization in December 2020 along with the Pfizer-BioNTech for their COVID-19 vaccines. BioNTech is the second largest holding in the portfolio, with the stock price rising 350% year-to-date.

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

 

Launching a week later, the Pacer BioThreat Strategy ETF (VIRS) is focused on U.S. companies whose products or services address biological threats to human health. Its top 10 holdings look quite different from that of GERM, including names such as NVIDIA, Home Depot and Amazon.

 

VIRS Top 10 Holdings
VIRS Top 10 Holdings

Chart courtesy of FactSet

(For a larger view, click on the image above)

 

VIRS also holds Moderna and BioNTech, though at significantly smaller weights than GERM. Moderna is currently a 4.5% weight in the portfolio and BioNTech is 2.5%. Johnson & Johnson, another manufacturer who has received emergency use authorization for its COVID vaccine, is one of the top holdings within the fund. The stock is up 14.1% for the year, far below that of Moderna or BioNTech.

 

Chart courtesy of StockCharts.com

 

Though GERM and VIRS seem similar on the surface, going down to the cellular level helps explain the performance differential for these two funds year-to-date.

 

 

However, both of these funds have outperformed the broader biotech ETFs year-to-date.

 

 

Big Biotech Looks Fatigued

The iShares Biotechnology ETF (IBB) has gained 12.8% for the year, underperforming the S&P 500 return of 20.6%. IBB is the leader among biotech ETFs, with $11 billion in assets under management. The fund tracks a modified market-cap-weighted index of U.S. biotechnology companies.

The SPDR S&P Biotech ETF (XBI) has $7 billion in assets under management. Taking a slightly different tack than IBB, this fund tracks an equal-weighted index of U.S. biotechnology stocks. XBI is in negative territory for the year, having fallen by 10.1%.

Moderna and BioNTech are holdings in these portfolios as well.  Moderna is the top holding in IBB, at 10.1%, but BioNTech has a smaller weight, currently 4.8%. Meanwhile, XBI’s equal-weighting methodology means there is no holding that makes up more than 1.3% of the portfolio.

The ongoing pandemic and consequent vaccine developments might prove to be beneficial for these more niche ETFs going forward. On Aug. 23, the FDA gave full approval to the Pfizer-BioNTech COVID-19 vaccine, making it the first to move beyond emergency use authorization.

Approval For Younger People Nears

Moderna has also begun submitting data to the FDA in an effort to receive full approval, a process that began about a month after Pfizer’s submission. This means that approval could be coming in just a few weeks.

Along with changes to approval status, the FDA is also analyzing data for younger people. As of this time, those under 12 are not able to be vaccinated, while Pfizer’s vaccine is approved for those aged 12 to 17. Approval for younger age groups is expected to come later this year.

Booster shots for those who are immunocompromised have also started to become available, while it’s recommended that those already vaccinated get a booster shoot eight months after their second dose.

With continuous mutation creating new COVID-19 variants, it seems that this particular area of the biotech space might be positioned for future returns as scientists race to stay ahead of the virus.

Contact Jessica Ferringer at jessica.ferringer@etf.com or follow her on Twitter

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