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.
The biotech sector is “a stealth bull market – no one ever talks about it,” he said during a CNBC appearance Wednesday. [ETF Chart of the Day: Biotech Sector]
SPDR S&P Biotech (NYSEArca: XBI) is up 22.7% year to date, compared with a 5.4% gain for iShares S&P 500 (NYSEArca: IVV), according to Morningstar.
“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.