Biotechnology and healthcare ETFs recently retreated, perhaps a sign of frustration on the coronavirus vaccine front or just a case of election year jitters.
Either way, the Invesco DWA Healthcare Momentum Portfolio (NASDAQ: PTH) is a buy on the dip candidate. PTH, which is nearly 14 years old, follows the Dorsey Wright Healthcare Technical Leaders Index.
“The Index is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 common stocks from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe,” according to Invesco.
Due to the race to develop a COVID-19 vaccine, PTH is relevant right here, right now, indicating its recent pullback could be a buying opportunity for prescient investors.
“We’re increasingly bullish that most of the vaccines entering late-stage development in the United States will meet Food and Drug Administration guidelines for approval,” notes Morningstar analyst Karen Andersen. “We think the global COVID-19 vaccine market could surpass $40 billion in 2021, including at least $11 billion in U.S. government contracts at a $24 average price per course.”
Since momentum strategies can overweight riskier stocks, the ETF could underperform during another correction. Since defensive stocks typically do better during volatile conditions, the momentum strategy could load up on conservative picks and miss out on the initial recovery in riskier assets.
Momentum investing is rooted in the notion that securities that are on torrid paces will continue acting that way over the near-term while laggards will continue slumping. Long-term data for the momentum factor are compelling, but the factor can be volatile.
Additionally, momentum investing can target those companies that are exhibiting high levels of growth. The momentum factor selects company stocks that have recently outperformed based on the idea that “the trend is your friend” and that stock market leaders typically continue to outperform. This type of strategy can be an effective way of targeting growth-oriented companies since stocks with positive momentum often continue to generate strong earnings.
Of course, PTH retains credibility as a coronavirus vaccine trade.
“For all these vaccines, we still need data on their ability to prevent infections in humans (from phase 3 studies) and longer-term data on safety before we expect regulators to allow an emergency use authorization or EUA. However, if expected data is strongly positive, we think this could provide enough information to allow EUAs this fall,” according to Andersen.
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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.