Biotechnology stocks bolstered the broader healthcare sector last year, a theme that is expected to continue in 2018.
Investors looking for a way to access potentially smaller biotechnology companies can consider the ALPS Medical Breakthroughs ETF (NYSEArca: SBIO), which focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III trials.
There are supporters of the biotech space. Healthcare stocks are also showing attractive valuations relative to other defensive sectors, which are richly valued. Biotechnology historically trades at multiples that are elevated relative to broader benchmarks, but after last year’s of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
Biotechnology historically trades at multiples that are elevated relative to broader benchmarks, but after last year’s of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
SBIO “invests in stocks of mid-cap and small-cap companies with a market capitalization of no less than $200 million and no more than $5 billion. It seeks to replicate the performance of the Poliwogg Medical Breakthroughs Index, by investing in the stocks of companies as per their weightings in the index,” according to ALPS.
Tax reform is also seen as a potential boon for the healthcare sector, including biotech companies. Large-cap biotech and pharmaceutical companies have been holding billions of dollars overseas to avoid harsh U.S. taxes. With a new lower corporate tax rate, those companies are expected to repatriate that cash back to the U.S., which could prompt increased deal-making among smaller biotech names, such as some components in SBIO.
“Yes, SBIO is coming off a year in which gained 45.6%, outperforming the Nasdaq Biotechnology Index by a better than 2-to-1 margin,” reports InvestorPlace. “That does not mean the ETF can’t offer a sequel in 2018. In fact, risk-tolerant investors may want to consider SBIO right here, right now, as January usually features some of the biotechnology industry’s most important conferences. Those events could bring positive (or negative) catalysts for SBIO holdings.”
Top holdings in SBIO currently include Galapagos NV (NASDAQ:GLPG), BeiGene Ltd. (NASDAQ:BGNE) and Taro Pharmaceutical Industries Ltd. (NASDAQ:TARO). That trio combines for 11% of the ETF’s weight.
For more information on the biotech sector, visit our biotechnology category.