The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotech ETF by assets, and rival biotechnology exchange traded funds were boosted in November by Republican Donald Trump’s surprising victory in the 2016 U.S. presidential election. However, enthusiasm for biotech ETFs has recently evaporated in significant fashion.
For example, IBB finished November with a gain of over 4%, but investors looking closer will see that the ETF is off 5% over the past week and now resides below its 20-, 50- and 200-day moving averages.
While Trump dispensed his own harsh rhetoric against high pharmaceuticals prices, he was usually seen as the preferred candidate for healthcare and biotech stocks and ETFs. Markets clearly are reflecting as much. Still, some technical analysts see biotech as still in fragile technical position.
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.
“Over the last nine months, the group has basically been in a sideways pattern, with the IBB ETF trading in a range between $245 and $300. Heading into the election, the group really got beaten down because of rhetoric surrounding drug pricing coming out of the Clinton camp, who was expected to win heading into Election night. When Trump won, we saw a huge bounce for the group, but unfortunately, IBB couldn’t quite test the high end of its sideways range, and it has since rolled over and broken back below its 50-day moving average,” according to a Bespoke Investment Group note posted by Teresa Rivas of Barron’s.
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.
For example, Amgen (NasdaqGS: AMGN), Gilead Sciences (NasdaqGS: GILD) and Celgene (NasdaqGS: CELG) combine for about a quarter of IBB’s weight.
For more information on the biotech sector, visit our biotechnology category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.