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Trump's Immigration Plans an Overhang on Biotech ETFs?

Zacks Equity Research

It’s correctly said that there are no borders when it comes to scientific research. However, President Trump’s take on H1B visas to prevent foreign workers from taking away American jobs is threatening the $324 billion biotech industry among many others (read: Trump Attacks Biotech & Pharma: ETFs Bleed).

Be it an early stage start up or a multinational giant, all corporations received a jolt when President Trump announced the travel ban, barring the entry of nationals from seven Muslim majority nations. Even though it was subsequently blocked in court, President Trump has promised to challenge the action. The uncertainty caused massive tension among the leaders of the biotech industry, considering the fact that firms like Amgen Inc. and Gilead Sciences Inc. rely on the best scientists from the world for top notch research and discoveries. Executives have stated that this action might be a setback for the ongoing research including the treatment of cancer (read: What Lies Ahead for Biotech ETFs in Trump Era?).

Chiefs from more than 160 companies wrote an open letter to Trump criticizing the action and expressing concerns over the future of the industry in case such a policy is implemented. The letter stated that as per a study, it was found that 52% of the researchers hired in the U.S. in 2014 were foreign nationals. The scale of dependency on foreign researchers is huge. It can thus be seen that a policy of this nature might cause massive disruption in the functioning of such an immigrant dependent industry.

Since President Trump’s future course of action over this policy is still uncertain, we have picked the following ETFs with a high exposure to the biotech Industry (read: Biotech ETFs Powered by Q4 Earnings):

VanEck Vectors Biotech ETF (BBH): This fund is suitable for investors seeking to get an exposure to the biotech industry capable of delivering great return with significant volatility. Given the tactical investment objective, these funds are most suitable for investors looking to gain through the biotech industry returns broadly invested in the equity markets.

With a low expense ratio of 35 bps and AUM of $691 million, this fund’s top three holdings are Amgen Inc. (12.13%), Celgene Corp (10.73%) and Gilead Sciences Inc (10.72%). The fund has a year-to-date return of 10.16% and a one-year return of 17.17%. This fund currently has a Zacks Rank#3 (Hold) with a High risk outlook.

iShares Nasdaq Biotechnology ETF (IBB): This fund is suitable for investors seeking to benefit from an exposure to the biotech sub sector of the health care industry. This fund is primarily invested in U.S. stocks but it also adds some international diversification.

With an expense ratio of 48 bps and AUM of $8.17 billion, this fund’s top three holdings are Amgen Inc. (8.54), Gilead Sciences Inc. (7.72%), and Celgene Corp. (7.69%). The fund has a year-to-date return of 9.24% and a one-year return of 12%. This fund currently has a Zacks Rank #3 (Hold) with a High risk outlook.

PowerShares Dynamic Biotechnology & Genome Portfolio ETF (PBE): This fund is suitable for investors seeking to benefit from an exposure to the biotech sub sector of the health care industry. This fund aims at using quant based screening for asset allocation to individual companies that may deliver better-than- expected performance relative to the broader universe.

With an expense ratio of 59 bps and AUM of $225 million, this fund’s top three holdings are Incyte Corp. (5.87%), Alexion Pharmaceuticals Inc. (5.68%), and Amgen Inc. (5.58%). The fund has a year-to-date return of 9.22% and a one-year return of 15.10%. This fund currently has a Zacks Rank#3 (Hold) with a High risk outlook.

SPDR S&P Biotech ETF (XBI): This fund is suitable for investors seeking to benefit from an exposure to the biotech sub sector of the health care industry and is capable of witnessing great jumps in case of major drug approvals. This fund is suitable for investors who are bullish on the sector over the long run. The equal weighted methodology of the index that it follows ensures balance across all components.

With an expense ratio of 35 bps and AUM of $2.47 billion, this fund’s top three holdings are ARIAD Pharmaceuticals Inc (3.98%), Clovis Oncology Inc (3.76%), and ACADIA Pharmaceuticals Inc (2.74%). The fund has a year-to-date return of 13.6% and a one-year return of 38.9%. This fund currently has a Zacks Rank#3 (Hold) with a High risk outlook.

Bottom Line

Growing uncertainty over President Trump’s immigration policies makes us think it’s best to remain on the sidelines for now.

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ISHARES NDQ BIO (IBB): ETF Research Reports
 
SPDR-SP BIOTECH (XBI): ETF Research Reports
 
PWRSH-DYN BIO (PBE): ETF Research Reports
 
VANECK-BIOTECH (BBH): ETF Research Reports
 
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