The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotechnology exchange traded fund, and rival biotech ETFs have disappointed investors for close to a year. Unfortunately, election year rhetoric could ensure that ominous trend continues.
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.
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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.
IBB and rivals such as the SPDR S&P Biotech ETF (NYSEArca: XBI) and the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) are among the previously high-flying biotech ETFs that have been sapped by politicians, looking to earn voters favor in an election year, attacking high drug prices.
[related_stories]In essence of bipartisanship, it is also worth noting that Republican contender Donald Trump has been sounding off on high pharmaceuticals prices.
“But political analysts paying close attention already know he’s staked out territory to the left of Clinton on drug pricing. To wit: Trump has said he favors “re-importation” of drugs from abroad where they sell for a lot less, noted “Fox & Friends” weekend co-host Tucker Carlson, at the Jefferies conference,” reports Michael Brush for MarketWatch.
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.
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“Generalists don’t have conviction on political rhetoric changing anytime soon and it’s not obvious or clear that either Presidential candidate would be necessarily “good” for biotech (which means still some uncertainty); (3) We are still somewhat in a risk-off environment, so we don’t expect big inflows until Street changes its perception of risk and it’s proven otherwise,” adds RBC in a note posted by Barron’s.
As MarketWatch points out, it is not just Clinton and Trump that are weighing on biotechnology and pharmaceuticals stocks. Several states have ballot measures to be voted on in November that seek to cap drug prices while some governors and attorneys general are pushing drug companies to explain big price increases.
For more news on Biotech ETFs, visit our Biotech category.
iShares Nasdaq Biotechnology ETF
