The healthcare sector, biotechnology stocks included, are often politically sensitive and that sensitivity is elevated in presidential election years. That scenario is repeating this year, but investors may want to consider the ALPS Medical Breakthroughs ETF (SBIO) as a post-election idea.
Given its leverage to smaller growth stocks, SBIO can avoid many of the political pitfalls that weigh on traditional, large cap-heavy healthcare exchange traded funds.
“We see healthcare policy as relatively stable in the first year of a potential Biden administration – as opposed to early in the first terms of President Barack Obama and President Donald Trump, when it was a principal focus of the policy discussion,” said BlackRock in a recent research piece.
SBIO is a fresh approach relative to legacy funds in the category. It’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.
Market History On SBIO’s Side
Additional good news comes in the form of long-running trends that show it’s typical that biotechnology stocks slump in advance of presidential elections only to rally soon thereafter and trade noticeably higher a year later.
The Covid-19 brought certain sectors serendipitous gains like technology, but even that space is now seeing sell-offs amid a September sell-off. As such, short sellers are coming in to reap the rewards, but one area that they’re backing off from is biotechnology.
“COVID response, economic recovery and climate-related initiatives would likely take priority in 2021, in our view,” said BlackRock.
Those areas of focus, should they materialize, represent little downside risk to SBIO.
“Measures to curb drug price increases are a potential focus – regardless of the election result. Yet we would expect only modest action against the backdrop of the pandemic, as drug makers are playing an important role in vaccine development and COVID response,” said BlackRock. “Overall we favor medical devices, life sciences and diagnostics companies.”
That outlook bodes well for growth healthcare fare, which in turn bodes well for SBIO.
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.
