The biotechnology sector and related exchange traded funds are breaking out to new highs, but the rapid ascension has some worried about valuations.
The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF by assets, has surged 27.9% year-to-date while the S&P 500 index has only gained 3.6%.
However, given the lofty year-to-year returns, some are growing cautious over the biotech sector.
“We’ve got a bit of a dotcom scenario going on in biotech,” James Paulsen, chief investment strategist at Wells Capital Management, told the Financial Times.
According to Markit, U.S. pharmaceutical, biotech and healthcare services are now the most shorted sector in the Russell 3000, overtaking the energy sector in April.
Some argue that the high valuations in the biotech sector have been supported by a low interest rate environment. However, with the Federal Reserve eying an interest rate hike, biotechs may be more vulnerable ahead.