The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), which tracks the Nasdaq Biotechnology Index, and rival biotechnology exchange traded funds, have recently been on the mend. Continued good fortune for this previously struggling set of ETFs could be telling regarding investors’ risk appetite heading into 2016’s latter stages.
IBB, the largest biotech ETF by assets, is heavily allocated to the largest biotech names. For example, Amgen (NasdaqGS: AMGN), Gilead Sciences (NasdaqGS: GILD) and Celgene (NasdaqGS: CELG) combine for about a quarter of IBB’s weight.
Investors who are closely watching the presidential race will want to keep an eye on Democratic nominee Hillary 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.
SEE MORE: BBP – An Outperforming Biotechnology ETF
That said, Republican nominee Donald Trump has also spoken out against high pharmaceuticals prices, indicating that investors need to assess whether or not biotech ETFs have put political concerns to rest before jumping into the group.
Investors should be mindful of IBB’s technical status.[related_stories]
“During the past 9 years, IBB has been inside rising channel, until it managed to break out in 2013 when it embarked on a 2-year rally. It peaked last July, when it came back down to test old channel resistance as new support at several different times,” according to Investing.com.
Rare are the occasions that biotechnology stocks and exchange traded funds are seen as offering value. In fact, the sector historically trades at multiples that are elevated relative to broader benchmarks, but in a year of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
SEE MORE: Resisting the Temptation of Biotech ETFs
IBB, which holds nearly 190 stocks and is a cap-weighted ETF, has a price-to-earnings ratio of just over 21 and a price-to-book ratio of 4.92. The ETF’s three-year standard deviation is just over 25 percent.
“What IBB does in the next few weeks — can it breakout? — should tell us a good deal about this leader. If it continues higher, it will send a positive price message to the risk-on trade,” according to Investing.com.
For more information on the biotech sector, visit our biotechnology category.
iShares Nasdaq Biotechnology ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.