One of this year’s sharpest pullbacks in equities was, some market observers would say, attributable to the late first-quarter/early second-quarter retrenchment in biotechnology stocks and the corresponding exchange traded funds.
So severe was the aforementioned selloff in biotech stocks that well-known ETFs tracking the sector, including the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) and the SPDR S&P Biotech ETF (NYSEArca: XBI), entered bear markets. [Bear Market for Biotech ETFs]
Things have been different for biotech ETFs during the current market malaise. Although ETFs like IBB have not been much to write home about in recent weeks, some of these funds have offered notably better performances than the S&P 500. Over the past month, IBB, the largest biotech ETF by assets, is lower by 4%, but the S&P 500 is lower by 5.7%.
Unlike the S&P 500, which committed this sin on Monday, IBB has not violated its 200-day moving average. The Market Vectors Biotech ETF (NYSEArca: BBH) also remains above its 200-day line despite falling 5.1% over the past month. That is still better than the S&P 500. [S&P 500 ETFs in Trouble]
“It’s too early to call it quits for biotech as it still maintains its 2011 uptrend line,” said Jonathan Beck of J. Beck Investments of IBB. “Also note this pattern highlighted (in the chart below) with the oval. There is still potential that this is a large accumulation pattern, in my opinion.”
The First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) and the PowerShares Dynamic Biotechnology & Genome Portfolio (NYSEArca: PBE) have been “standouts” of sorts among biotech ETFs. FBT and PBE are down 3.3% and 4%, respectively, over the past month. Both ETFs have been intimately levered to this year’s biotech mergers and acquisitions cycle.
Even biotech ETFs remain less bad than their broader market, investors should exercise selectivity among these funds. For example, IBB and BBH have been less bad due to substantial allocations to large-cap biotechs such as Amgen (NasdaqGS: AMGN) and Biogen (NasdaqGS: BIIB). Conversely, XBI, which as an equal weight ETF features ample small-cap exposure, is down 6.2% in the past month.
iShares Nasdaq Biotechnology ETF
Chart Courtesy: J. Beck Investments
ETF Trends editorial team contributed to this post.