The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotechnology exchange traded fund, and rival biotech ETFs are vexing investors this year. Just when turnarounds for these funds look legitimate, they tumble again, prompting investors to question when it will be safe to embrace these once high-flying ETFs again.
Recently, IBB looks like it is trying to rally again. The same can be said of rivals, such as the SPDR S&P Biotech ETF (NYSEArca: XBI) and the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT). For example, IBB is higher by 7% over the past month while XBI is up more than 12% over the same period.
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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.
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.
“The good news: (1) Our thesis in H1 in our 2016 Playbook report was that things could get better as rhetoric is always worst at the beginning and rarely as bad as feared; indeed, some of the first two pillars have been helping biotech outperform recently and we are building a hopeful floor and stability which can help build investor confidence to buy stocks; (2) Q2 earnings should be better than Q1 and reason enough to have some confidence to own biotechs to hit consensus; (3) RBC Technician Rob Sluymer has published four charts showing biotech indices holding support levels and outperforming defensive med tech, which is an early sign of some HC rotation… In our view, just moving up +15% in H2 would be great performance and ending the year flat would be ‘healthy,’” according to an RBC note posted by Ben Levisohn of Barron’s.