Rock star and golf aficionado Alice Cooper once told us, as if it was not already apparent, that school is out for summer. Good news for biotechnology bulls: The same cannot be said of some big-name biotech stocks.
The “Nasdaq Biotech Index index has outperformed the broader market eight out of 10 times over the summer period (Memorial Day to Labor Day) and in 2Q/3Q, there are a number of meaningful catalysts, especially in larger cap biotech for Vertex Pharmaceuticals (NasdaqGS: VRTX), Amgen (NasdaqGS: AMGN), Regeneron Pharmaceuticals (NasdaqGS: REGN), Biogen (NasdaqGS: BIIB), Gilead Sciences (NasdaqGS:GILD) and Alexion (NasdaqGS: ALXN). We think the tone in the group has turned back to a bullish outlook, though the ASCO meeting (May 29-June 2) can create shorter-term volatility. With the innovation wave in SMid cap picking up momentum and with an event-rich summer for large caps, we remain positive on the biotech group overall,” according to a Barclays note posted by Barron’s.
That assessment could prove to be good news for biotech exchange traded funds, such as the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), which tracks the Nasdaq Biotech Index, as well as rival funds with an emphasis on large-cap biotech names, including the Market Vectors Biotech ETF (NYSEArca: BBH). [New Highs for Biotech ETFs]
The $8.9 billion IBB, the largest biotech ETF by assets, allocates almost 38% of its combined weight to the aforementioned biotech stocks. The $804.7 million BBH, which carries a five-star Morningstar rating, allocates over 49% of its weight to Amgen, Biogen, Gilead, Alexion, Regeneron and Vertex. [A Different Type of Biotech ETF]
“We see scenarios for upside value across multiple companies we highlight Biogen and Alexion as having particularly favorable risk / reward profiles based on very defensible core businesses and very good pipeline / launch upside,” according to Barclays.
While the Nasdaq Biotech Index and, subsequently, IBB can be impressive summertime performers, that does not mean the same can be said of the broader healthcare sector.
From May through the end of August, the Health Care Select Sector SPDR (NYSEArca: XLV), on a historical basis, only ranks as one of two best sector SPDRs, on one occasion: In June. Even in that case, XLV being the second-best in June means it is just less bad than its sector counterparts because, dating back to 1999, XLV’s usually posts a modest June loss, according to CXO Advisory.
XLV, the largest healthcare ETF by assets and home to a 20.5% biotech weight, averages small gains in July and August.
iShares Nasdaq Biotechnology ETF