Rising Rates May Hurt Small-Cap Biotech ETF Valuations

While this won’t affect many companies with some revenue streams, small-cap biotech stocks and related ETFs could look less attractive in this environment.

For example, the targeted BioShares Biotechnology Clinical Trials Fund (NasdaqGM: BBC) is comprised of up-and-coming biotechnology companies that are in the clinical trials stage with no product sales.

The ALPS Medical Breakthroughs ETF (NYSEArca: SBIO) focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III U.S. FDA clinical trials.

Alternatively, investors can turn to other biotech ETFs that target more established firms. The BioShares Biotechnology Products Fund (NasdaqGM: BBP) follows U.S.-listed biotech companies with a primary product offering or product candidate that has landed FDA approval. The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), SPDR S&P Biotech ETF (NYSEArca: XBI), First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) and VanEck Vectors Biotech ETF (NYSEArca: BBH) all track larger biotech companies.

For more information on the biotech sector, visit our biotechnology category.