Fabulous Fundamentals Brighten Outlook for Healthcare, This Biotech ETF

The ALPS Medical Breakthroughs ETF (SBIO) is higher by almost 39% over the past 90 days. Importantly, that impressive move is underpinned by strong fundamentals throughout the broader healthcare sector.

Strong fundamentals are particularly important when assessing SBIO’s roster, which is comprised mainly of mid- and small-cap stocks. 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.

“For healthcare, specifically, I’d call out three key fundamental factors driving some of the returns,” said Morningstar analyst Damien Conover. “First off, we’re seeing good underlying fundamental research and development that really drives a lot of the stock returns for these different companies. Second, these companies are very well-positioned moving into potential policy reform.”

With 2020 being a presidential election, there are some political considerations with SBIO, but that situation may not be as ominous as some market observers previously believed.

“With Joe Biden, the likely Democratic nominee for president, it’s likely that either he or Trump will probably not institute major healthcare reform, which is probably a good thing for stocks within the healthcare sector,” notes Conover.

Biotech in Focus

Biotech ETFs, including SBIO, are garnering plenty of attention this year due to the fight against the novel coronavirus. Wall Street is already making moves towards doubling down on biotech “when positive data for one of Pfizer Inc’s COVID-19 vaccine candidates sent shares of the large U.S. drugmaker up more than 3%. Shares of its partner on the vaccine, Germany’s BioNTech SE, have been flat on the data,” per a Wall Street Journal report.

“The last point I’d make here is that within the coronavirus, there is a defensive nature of healthcare companies, and these companies should hold up reasonably well despite any of the economic fallout from the coronavirus,” said Conover.

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.