ETFs tracking biotechnology and other innovative healthcare firms have recorded impressive performance recently with several funds notching up returns in excess of 14% over the past month.
Several ETFs providing exposure to biotechnology and other healthcare innovation companies have recorded gains in excess of 14% over the past month.
The robust performance compares favourably to the S&P 500 Index which has returned 3.9% over the same period (data as of 26 November 2019).
Leading the field amongst healthcare innovation ETFs is the actively managed ARK Genomic Revolution Multi-Sector ETF (ARKG US) with a one-month return of 19.0%.
The fund, which currently houses $400 million in assets under management and comes with an expense ratio of 0.75%, invests in a portfolio of between 30 and 50 securities listed in the US including ADRs of foreign companies.
Eligible companies include those conducting a range of genomics-related activities such as targeted therapies, bioinformatics, molecular diagnostics, stem cell research, and agricultural biology.
Passive ETFs tracking healthcare innovators have also had a strong showing. The niche Loncar Cancer Immunotherapy ETF (CNCR US), which focuses on firms engaged in research and development of therapies that treat cancer through the body’s immune system, and the Virtus LifeSci Biotech Clinical Trials ETF (BBC US), which invests in biotechnology companies with promising drugs in the final stages of human clinical trials, have both climbed just shy of 17% over the past month.
Both the Loncar and Virtus ETFs employ an equal-weighted approach within their index construction, highlighting the impact smaller-cap firms have had on the sector’s performance. Both funds come with expense ratios of 0.79%.
Other related ETFs with impressive monthly returns include the Global X Genomics & Biotechnology ETF (GNOM US), up 15.2%; the Virtus LifeSci Biotech Products ETF (BBP US), up 14.9%; and the Principal Healthcare Innovators Index ETF (BTEC US), up 14.7%.
Tailwinds
Biotechnology companies are gaining due to a string of positive trial results as well as merger & acquisition activity; however, these firms are also benefitting from a rally in the broader healthcare sector which has risen 7.8% over the past month, as represented by the SPDR Health Care Select Sector ETF (XLV US).
According to analysts, healthcare stocks are rising due to a reversing of overly negative sentiment related to political risks in the first half of the year (the S&P 500 rose 19.3% between 1 January and the end of June 2019, while XLV gained just 8.4%). Recently, however, several leading Democratic presidential nominees have outlined more conservative “Medicare for All” ideas, allaying investor fears that a radical overhaul might decimate the sector.
Healthcare stocks also delivered a strong third-quarter earnings season with the sector recording earnings growth and revenue growth of 9.5% and 15.4%, respectively, according to Refinitiv data.