Another Round of Coronavirus Cases Puts This Biotech ETF in Focus

Already one of the ETFs at the center of the coronavirus investment thesis, the ALPS Medical Breakthroughs ETF (SBIO) could be poised for more upside as the U.S. grapples with a second wave of the respiratory illness.

SBIO focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III trials. The component holdings have one or more drugs in either Phase II or Phase III U.S. Food and Drug Administration clinical trials. In a Phase II trial, the drug is administered to a group of 100-300 people to see if it is effective and to evaluate its safety. In a Phase III trial, the drug is given to a larger group, between 500-3,000 people, to confirm its effectiveness, monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatment to be used safely.

When it comes to SBIO’s near-term possibilities, Morgan Stanley analyst Matthew Harrison, who’s not commenting on the fund specifically, is worth listening to.

“The brokerage’s biotechnology analyst Matthew Harrison wrote that his base case scenario projects a ‘second wave’ in the fall with daily new cases summing between 40,000 and 50,000 nationwide,” reports Thomas Franck for CNBC. “Investors often listen to Harrison in greater numbers for his success in predicting the course of the pandemic and government responses.”

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SBIO is higher by almost 34% in the second quarter, a period in which some states are experiencing upticks in Covid-19 cases.

A number of states are showing a dramatic surge in coronavirus cases, necessitating closures of bars, and the rollback of reopening plans, spooking investors and driving markets lower, as summer was believed to be a reprieve from the virus due to its supposed intolerance for heat. Adding to the stress is that California, Texas, and Florida – the three largest states – are all enduring dramatic coronavirus case increases.

“We expect to see some additional lockdowns potentially as early as this summer for certain hot spots, but most likely in the fall when flu season ramps and hospital capacity fall,” said Harrison.

Other biotech ETFs include the VanEck Vectors Biotech ETF (BBH), iShares Nasdaq Biotechnology ETF (IBB), and the Virtus LifeSci Biotech Clinical Trials ETF (BBC).

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.