Could now be the time to invest in biotech? The space, which performed well in 2020 and 2021, dropped off in the interim amid high interest rates and slowing deal-making. Now, given September’s cuts and potential additional cuts ahead, the broader conditions for biotech appear to be improving. Those investors looking to either move out of cash or move sideways in equities may want to consider disruptive biotech exposure through the Disruptive Medicine ETF FMED.
See more: Under the Hood of Fidelity’s Blue Chip Growth ETF
The Fidelity Disruptive Medicine ETF (FMED) charges 50 basis points for its approach. The fund actively invests in either growth or value stocks of firms that can potentially displace industry leaders in biotech. The active ETF targets firms in genomics, rare diseases, medical devices, immunotherapy, advanced diagnostics, and more.
The Case for Disruptive Medicine ETF FMED
That approach underscores its appeal should biotech fundamentals continue to improve. A new analysis from Fidelity Investments points out a few important factors. M&A, a core driver of biotech valuations and returns, could be poised to rebound given “near-record cash” on large biotech and pharma firms’ balance sheets.
That can help those firms buy up appealing, smaller firms, especially with cheaper borrowing costs amid dropping rates. What’s more, Fidelity’s research points out that small-cap quality may be increasing as earnings in the S&P Small Cap 600 Index are set to improve by the end of the year.
Taken together, that approach has helped the biotech ETF perform well this year. The fund has returned 26% on an NAV and market return basis over one year, per Fidelity Investments data. With the ETF’s price rising over the last half of the year per YCharts data, it could embody a broader resurgence for small-caps as fundamentals improve therein.
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Fidelity Investments® is an independent company, unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the information herein. VettaFi LLC is the author and owner of these articles.
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