Biotechnology ETFs, including the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), have been rebounding for over a month, but investors remain apprehensive about the group.
This month, IBB, the largest biotechnology ETF, is higher by 8.20% and since the start of the current quarter, the fund is higher by nearly 19%. However, investors are still departing biotechnology funds.
“n the weekly period ending Wednesday, a group of health care/biotech funds tracked by Lipper/AMG Data Services saw $184 million in outflows, according to a note Thursday from Piper Jaffray analyst Christopher Raymond, continuing a trend that has been going on for months,” reports Josh Nathan-Kazis for Barron’s.
IBB 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.
Waiting For Investors To Return
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.
“This is the 12th week of outflows in the past 14 weeks for the sector during which time net outflows have totaled ~$3.5B,” said Piper Jaffray’s Raymond, according to Barron’s.
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.
“The outflows this past week reflected a decrease in the assets of the group of funds by 0.2%. Raymond wrote that a sample of nonspecialized funds saw outflows of 0.04% during the same period,” according to Barron’s.
Investors have pulled $1.34 billion from IBB this year.
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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.