If there were a defining sector for investors this year, it has been tech investing. The ascendance of AI has lifted valuations and investor portfolios, boosting the market as a whole. Of course, AI is not the whole story in tech. The story going under the radar may well be the revenge of biotech. With rate cuts in play following September’s Fed moves, the debt-heavy space could poised to appeal. Investors can see that trend already in the remarkable, explosive performance of the biotech ETF SBIO.
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SBIO, the ALPS Medical Breakthroughs ETF, hit will celebrate its tenth birthday this December. The strategy has returned 61.4% over the last year per YCharts data. That far outpaces the ever-present SPDR S&P 500 ETF Trust (SPY), for example. SPY has performed very well, of course, returning 40.45%. Still, investors that had jumped onto the biotech train would have outdone the fund.
As a thematic allocation, the biotech ETF could appeal. Charging 50 basis points (bps), the strategy tracks the S-Network Medical Breakthroughs Index. That index offers a market-cap weighted approach to U.S. biotech firms with at least one drug in a Phase II or III FDA Clinical Trial. Those firms typically have market caps between $200 million and $5 billion. The ETF also screens for cash on hand as a metric of financial sustainability.
Biotech ETFs present an intriguing route into tech. By relying less on AI, they can provide a level of internal diversification from mainline tech. What’s more, their ties to the traditionally defensive health sector can potentially make the space more resilient overall. More important than both of those, however, are rate cuts. Biotech valuations rely heavily on M&A activity, which itself relies on borrowing. Further rate cuts, then, could provide a continued boost for SBIO’s strong performance.
VettaFi LLC (“VettaFi”) is the index provider for SBIO, for which it receives an index licensing fee. However, SBIO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SBIO.
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