Amid intensifying scrutiny of drug pricing and other political pressures, biotechnology ETFs and active mutual funds endured some rough sledding in the third quarter.
The iShares Nasdaq Biotechnology ETF (IBB), VanEck Vectors Biotech ETF (BBH) and the equal-weight SPDR S&P Biotech ETF (XBI) are all saddled with third-quarter losses and data suggest investors have been fleeing biotech funds, both active and passive.
The biotech segment and broader healthcare sector have underperformed the broader market as investors exited positions in response to growing discourse over policy proposals aimed at reducing drug prices in Washington, Bloomberg reports.
“This marks the sixth straight week of outflows which have totaled ~$2.1B during this time, and represents the longest stretch of continuous outflows since mid-November 2017,” said Piper Jaffray analyst Christopher Raymond in a note out Friday, referencing the week ended Sept. 27.
With one trading day left in the third quarter, IBB has lost nearly $182 million in the quarter while XBI has bled $226.44 million. BBH has lost a more modest $18.70 million.
The IBB ETF allocates its holdings based on their market caps, which translates to more valuable names representing more sizable portions of the portfolio. That structure can provide protection in times of volatility, as larger companies can survive better than their smaller, more focused counterparts.
Outflows Slowing Down
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.
“The week ended Wednesday saw $58 million in net outflows from the healthcare and biotech-dedicated funds, a drop that amounted to 0.1% of their holdings. Last week, Raymond reported $384 million in outflows,” reports Jonathan Nathan-Kazis for Barron’s.
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.
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