Biotechnology exchange traded funds have rallied on the Donald Trump win and may continue to strengthen as traders retracted months of bearish sentiment fueled by Hillary Clinton’s hostility toward the sector.
The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotech ETF by assets, jumped 17.4% over the past week, but it is still down 14.2% year-to-date, partly due to fear’s of a Clinton victory after Democratic runner stated that she would tackle high drug prices.
Clinton “not being in the White House removes the notion of some sort of price controls off the table,” Tony Butler, an analyst at Guggenheim Securities, told Reuters. “From the perspective of pharmaceutical, biotechnology, generic (drug) stocks, (the election) went about as well as could be expected.”
Biotechnology and pharmaceutical stocks also strengthened after the defeat of a California ballot proposal aimed at reining in the increasing prices on prescription drugs.[related_stories]
The sector has been on edge ever since Clinton censured the specialty drug industry for “price gouging.”
Furthermore, market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector.
The pace of biotech M&A “could accelerate if changes in the tax code support this trend by facilitating the repatriation of cash ‘trapped’ overseas for bigger biopharma companies,” Adnan Butt, an analyst at RBC Capital Markets, told Reuters.
ETF traders whore are betting big on the biotechnology sector rebound have also utilized leveraged long options. For instance, the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index, surged 81.5% over the past week.
Other options include the ProShares UltraPro Nasdaq Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark.
“Biotech has a lot of room to run over the next six to 12 months,” David Fajardo, Senior Vice President of Direxion Investments, told ETF Trends in a call.
For more information on the biotech sector, visit our biotechnology category.
iShares Nasdaq Biotechnology ETF