Following presidential elections, biotechnology stocks and exchange traded funds often rally. If that historical precedent holds true to form, ETFs such as the ALPS Medical Breakthroughs ETF (SBIO), could be entering new sweet spots.
“Healthcare stocks are emerging as some of the biggest market winners post-election as the possibility of a divided government transpires,” reports Maggie Fitzgerald for CNBC. “The likelihood of a Democratic president and Republican Senate could keep the healthcare industry safe from shakeup that would otherwise happen with a progressive agenda.”
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.
Limited Political Threats, Lots of Potential
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.
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, with the S&P 500 and S&P Small Cap 600 growth indices outshining their value counterparts.
“Biden has called for drug pricing reform surrounding the Affordable Care Act, but Wall Street agrees a Republican Senate would make changes difficult,” according to CNBC. “Stifel expects a Biden administration to increase rhetoric around drug pricing, though with a legislative gridlock, it doesn’t expect there to be any real threat to the status quo.”
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.
