There’s no denying biotechnology ETFs are benefiting from the race to cure and treat and the novel coronavirus. Just look at the VanEck Vectors Biotech ETF (BBH), which is higher by more than 7% over just the past month.
BBH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Biotech 25 Index (MVBBHTR), which is intended to track the overall performance of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment.
“Recent developments by some biotech firms have not only raised hope for investors eager for anything that will mitigate the epidemic, but the optimism has also helped lift the sector’s performance so far this year,” according to a new VanEck research note. “ETFs that track companies in the biotech sector, such as the VanEck Vectors Biotech ETF (BBH), have also rallied.”
Betting on Biotech
When investors are looking for more aggressive rates of growth, biotech stocks typically represent some of the best opportunities for rapid appreciation. These companies spend a plethora of time and massive amounts of money to fund breakthrough biological treatments and diagnostic tools. Blossoming developments can literally change their fortunes, and the fortunes of shareholders overnight.
Novel vaccines are another area BBH provides exposure to and that’s a potentially important front in the war against COVID-19. Moderna is developing several vaccines to cure respiratory syndromes and flu. The company is now working to develop a vaccine for the coronavirus. Moderna is a top 10 holding in BBH.
“The sector’s growth potential seems encouraging, as forecasters expect demand for diagnostics and antibody tests to outstrip supply for the foreseeable future,” said VanEck. “At the time of writing, the coronavirus has already infected more than 4M globally, and the death toll has surpassed 290,000. Even governments that appeared to have tamed the disease have warned of resurgence.”
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 struggles for biotechnology names, some analysts see value with some big-name biotech stocks. This year, the industry is one of the best-performing groups, due in large part to the pandemic.
“COVID-19 and the urgency in finding a cure have opened up opportunities, making the biotech sector a prospective space for investments. Instead of trying to pick which are the most likely beneficiaries, one of the easiest ways to invest in biotech is via an ETF like BBH,” according to VanEck.
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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.