The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, is up nearly 11% year-to-date and that could be encouraging some traders to turn bullish on once-beloved biotechnology stocks and ETFs.
Healthcare stocks and ETFs rallied immediately following Republican Donald Trump’s surprising November victory. The impact of a Trump presidency on healthcare stocks remains to be seen. Candidate Trump rebuked Obamacare and if successful in that effort, there would likely be some effect on diversified healthcare ETFs due to their exposure to health insurance providers.
While Trump was seen as the preferred candidate for the healthcare sector, the newly inaugurated president has not been shy about unleashing rhetoric aimed at high pharmaceuticals prices. Additionally, some industry observers believe healthcare stocks could face more politically-induced headwinds as the Republican-controlled Congress looks to unwind the Affordable Care Act, also known as Obamacare.
“Longer term, however, he likes biotech given “the demographics of aging, the global market and it looks like this is an area that might be relatively less likely to be affected or slammed into by various Twitter policies or public politician-led discussions about drug prices,” said Max Wolff, market strategist at 55 Capital, in an interview with CNBC.
Other biotech ETFs are on the mend, too. After struggling through one of its worst annual performances in several years in 2016, the SPDR S&P Biotech ETF (NYSEArca: XBI), the third-largest biotechnology exchange traded fund, is surging to start 2017.
XBI is an equal-weight ETF, featuring more exposure to smaller to biotech stocks. 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. IBB is the largest biotech ETF by assets.
“Biotech stocks, particularly the XBI, look attractive on a technical level to Ari Wald, head of technical analysis at Oppenheimer,” according to CNBC.
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.
For more information on the biotech sector, visit our biotechnology category.