The ALPS Medical Breakthroughs ETF (SBIO) is one of many biotechnology ETF garnering attention this year amid the race to defeat the coronavirus, but SBIO also offers investors allure that will extend beyond the pandemic.
SBIO is a fresh approach relative to legacy funds in the category. It’s underlying index, the Poliwogg Medical Breakthroughs Index is comprised of small- and mid-cap stocks of biotechnology companies that have one or more drugs in either Phase II or Phase III U.S. Food and Drug Administration (FDA) clinical trials.
“Biotech stocks are reviving a powerful rally started late last year. In the fourth quarter of 2019, biotechs surged, sending the more than 500 stocks in IBD’s Medical-Biomed/Biotech industry group to a collective gain of 32% for the quarter. Meanwhile, the Nasdaq rose 12%. A strong earnings season and a major run of mergers throughout 2019 bolstered biotech investing,” reports Allison Gatlin for Investors Business Daily.
Biotech ETFs that focus on smaller companies have been enjoying a nice boost this year as larger companies begin to sift through smaller researchers to build up their portfolios.
Many big pharmaceutical and biotechnology companies are no longer relying on blockbuster drug sales as many of their intellectual property rights expire. Instead, many are now relying on targeted or specialized therapies or treatment methods, which has increased the demand for mergers and acquisitions for smaller developers and research companies.
“This year, biotech stocks plunged alongside the broader market as the coronavirus pandemic slammed Wall Street. But after closing at their lowest point this year March 18, the industry group has soared 60% (as of Thursday). That narrowly topped the Nasdaq’s 59% rebound, but clobbered the S&P 500’s 48% bounce,” according to IBD.
At a time when clinical trials are increasingly meaningful, SBIO meets investor interest on that front. The ETF’s 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.
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
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.