Third-Largest Biotech ETF Up 20% Year-to-Date

After slumping last year, the SPDR S&P Biotech ETF (NYSEArca: XBI), the third-largest biotechnology exchange traded fund, is up 20% year-to-date, putting the equal-weight biotechnology fund in a new bull market. Some market observers see more upside coming for the popular biotechnology ETF.

There are other catalysts to consider, including that the U.S. economy moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care. Still, political risk looms.

XBI’s technical outlook is compelling as well.

“Because of the use of monthly moving averages, trading signals are relatively rare. Since the inception of XBI only five buy signals have been generated. Two of them were profitable and two of them were unprofitable. However, the profitable trading signals have greatly outperformed the two unprofitable signals,” according to Seeking Alpha.

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.