With election year in the rearview mirror, 2021 could bring upside for biotechnology stocks and exchange traded funds if historical trends hold true to form. That would be a boon for the ALPS Medical Breakthroughs ETF (SBIO). There are some encouraging fundamental catalysts at play for SBIO as next year beckons.
SBIO’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.
Importantly, the ETF isn’t dependent on advancements on the coronavirus vaccine front. Rather, the fund offers leverage to other exciting biotech developments.
“Drugmakers are racing to develop treatments and vaccines that will help combat the coronavirus pandemic,” reports Business Insider. “While that work progresses, biotech companies focused on finding treatments for conditions like Duchenne muscular dystrophy, cystic fibrosis, and Alzheimer’s disease are carrying on their work with pivotal data or approvals expected in the next year.”
SBIO’s Clinical Trial Potency
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.
“Analysts at UBS noted that they’re optimistic about 2021, given how the biotech market performed in 2019 and so far in 2020. With that in mind, UBS analysts on Tuesday initiated coverage on nine biotech companies, four of which received buy ratings. Of those four, UBS anticipates two could soar more than 50%,” according to Business Insider.
A primary benefit of SBIO is that this is a growth fund chock full of companies that emphasizing research and development, which is critical to success in the biotechnology arena.
Fast-growing companies have been outperforming their value-styled peers, or companies described as trading at a low multiple of their book value. The growth category has pushed ahead of value through much of the decade-long bull rally, and it continues to hold true in 2020.
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.