The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotechnology exchange traded fund, is up 9.2% over the past month. Performances for some rival biotech ETFs have been even better and that may be setting the stage for once beloved biotech ETFs to recapture some of their lost glory.
The First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) and the SPDR S&P Biotech ETF (NYSEArca: XBI), the second- and third-largest biotech ETFs, respectively, are up an average of nearly 13% over the past month and there are catalysts that could carry these and other biotech ETFs higher over the near-term.
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Multiple factors, including politics, are pressuring biotech stocks and ETFs this year. Election year posturing over drug prices represents a significant headwind for the healthcare sector and that is something biotech ETFs like IBB have already proven vulnerable to. Just go back to September 2015 and refer to Hillary Clinton’s Twitter feed.
[related_stories]Investors who are closely watching the presidential race will want to keep an eye on Clinton in the coming months. If Clinton makes her way to the Oval Office and implements more regulation on pharmaceutical drug pricing, biotech companies may underperform the broader market.
Biotechnology ETFs should also prove immune to hawkish changes in Fed policy. A recent study by Deutsche Bank indicates major biotech indexes have negative correlations to changes in 20-year U.S. government bonds. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
“The IBB has traded below its 200-day moving average for the entire year, in sync with the overall downtrend of the health care sector. But by Evercore ISI technical analyst Ross’ work, that steady underperformance gives the ETF a sturdy foundation to break through the moving average at approximately $300,” reports CNBC.
The improved outlook for the health care industry comes as many expect continued growth in the sector, despite an ongoing so-called earnings recession in the S&P 500. While FactSet anticipates the broad S&P 500 to show an earnings decline of -9.1% for Q1 2016, the health care sector is expected to report revenue growth of 8.9%.
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S&P Global Market Intelligence also mirrors this sentiment, projecting S&P 500 Q1 EPS to decline 7.5% year-over-year but anticipating 2.9% earnings growth for the health care sector.
“Further examination of the IBB’s strength over the longer term, though, is what Ross says proves the resilience of the space. The ETF has managed to stay above its 200-week moving average for the last six years,” according to CNBC.
For more news on Biotech ETFs, visit our Biotech category.
iShares Nasdaq Biotechnology ETF
