It’s been a long road of disappointment for healthcare stocks. And biotechnology names have been among the worst offenders. Over the past three years, the largest ETF dedicated to the healthcare sector gained just 11.3%. The biggest biotech ETF lost half a percent. The S&P 500 surged 35.7% during that period.
Those data points could be plausible reasons for investors to ignore healthcare stocks. But that could be an indication of an environment that’s ripe with opportunity. It’s also one that could be conducive to rebounds by funds such as the ALPS Medical Breakthroughs ETF (SBIO).
One near-term catalyst for healthcare stocks and ETFs like SBIO is the possibility that policy uncertainty following the election of President Trump has been overstated by healthcare investors.
“The Pharma, Biotech, and Life Sciences industries have been among the worst performers since markets began pricing in a Trump victory last fall,” noted Stephanie Aliaga, global market strategist at J.P.Morgan Wealth Management. “The new administration is expected to push for lower drug [prices. And] changes in Medicare plans may add to challenges. However, we might be at peak [uncertainty. We might have a] clearer picture of the new policy direction in the coming weeks.”
Other Stars Could Align for SBIO
It’s possible regime change in Washington, D.C. could be beneficial to the healthcare sector. One example of that could be Trump’s effort to make the U.S. a hub of AI development and innovation.
That’s relevant to investors considering healthcare stocks — particularly pharmaceuticals developers. That’s because AI and technology have significant intersections with healthcare research and development.
“Advances in technology are driving the expansion of home health and creating opportunities across software platforms, medical devices and advanced data analytics businesses,” added Aliaga.
Another potential spark for healthcare equities, particularly biotech fare and SBIO, is the expectation the Trump administration will be more open to consolidation. And the Federal Trade Commission (FTC) might possibly speed along healthcare takeovers. That could be a boon to SBIO — an ETF with history of seeing some of its holdings acquired by larger firms. Those are points to remember at a time when large-cap pharma companies are flush with cash and need to replenish product pipelines.
“The industry is ripe for [partnerships. M&A] activity is expected to increase in [2025. That’s because companies] have deleveraged from 2023 transactions and the patent cycle approaches,” concluded Aliaga.
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