The Nasdaq Biotechnology Index (NBI) launched in 1993, when the industry was still in the midst of the original “biotech revolution.” Since then, its constituent basket has swelled from roughly 100 components to 274, reflecting the tremendous growth in the small cap space – the overwhelming majority of which has stemmed from IPOs on the Nasdaq Stock Exchange.
As the biotech industry enters a new phase of growth, it’s more important than ever for investors to consider their allocations toward the space.
In the upcoming webcast, The Biotech Trek: A Short History from 1993 to 2021, Rene Reyna, Head of Thematic and Specialty Product Strategy ETFs and Indexed Strategies, Invesco; and Mark Marex, Research & Development Specialist, Nasdaq Global Indexes, will discuss the regulatory, scientific, and demographic factors driving today’s growth in biotech and why the Nasdaq Biotechnology Index’s methodology leads to the best representation of the sector.
The Nasdaq Biotechnology Index (NBI) has set the standard. NBI, which has a track record spanning nearly three decades, is now the underlying index for the newly minted Invesco Nasdaq Biotechnology ETF (IBBQ).
One of eight globally listed ETFs now use NBI as the benchmark. For fund issuers, using NBI as a biotech gauge is relevant on multiple fronts. First, its performance has been stellar. The index surged 370% during the 2010s, trouncing traditional healthcare indices in the process. Second, although NBI is a large cap index, it’s a broad one. Today it has 274 components, up from just 100 at the start of 2010. In other words, the index has captured the rapidly expanding biotechnology space.
In fact, data confirm NBI is a relevant benchmark for fund issuers looking to provide exposure beyond just the largest biotech names. NBI’s inclusion of mid- and small-cap names is important because it gives the index the flexibility to make room for new biotech stocks. Since the start of 2020, there have been 123 biotech IPOs, 120 of which listed on the Nasdaq. Data indicate issuers opting to use a Nasdaq index for a biotech ETF get a more complete view of the overall market for these stocks.
NBI’s components are research- and development-intensive. In the biotech space, which is research-intensive itself, that’s a recipe for success. Additionally, a dedication to R&D helps companies avoid patent cliff vulnerabilities while making them more attractive takeover targets.
Financial advisors who are interested in learning more about the biotech sector can register for the Wednesday, June 30 webcast here.
