While the Coronavirus pandemic continues dominating healthcare sector headlines, investors shouldn’t fret that biotechnology ETFs will be left vulnerable when the virus is finally vanquished. That’s good news for the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), among other biotech ETFs.
With the COVID-19 pandemic raging, biotechs that are consistently profitable and that offer drugs that patients absolutely must have could be seen as relatively safe compared to many other stocks on the market. For investors looking to stay in the market and diversify portfolios, here are two biotech ETFs that could be worth diversifying into during the coronavirus crisis.
“As large swaths of the US economy were being shuttered earlier this year to help mitigate the fallout from the coronavirus (COVID-19) pandemic, the biotechnology industry unleashed its capacity for innovation, creating new methods for testing, therapeutic treatments, and vaccines for COVID-19,” according to First Trust. “Progress in these areas has been achieved at an unprecedented pace, and numerous clinical trials are currently ongoing. As the economy reopens, many are depending on the success of newly created therapeutics and vaccines to save lives and avoid future lockdowns. Indeed, the last few months have demonstrated the critical importance of a robust biotechnology industry.”
Many big pharmaceutical and biotechnology companies are no longer relying on blockbuster drug sales as many of their intellectual property rights expire. Instead, many are now relying on targeted or specialized therapies or treatment methods, which has increased the demand for mergers and acquisitions for smaller developers and research companies.
“As an investment theme, biotechnology has also worked relatively well during the crisis; the NYSE Arca Biotechnology Index reached a new all-time high in June. Nonetheless, we believe the industry’s best days may still lie ahead. In our view, the events of the past few months help to improve the long-term outlook for these stocks, which may benefit from more efficient regulation, industry consolidation, and a rehabilitated public image,” according to First Trust.
FBT is also worth considering if the U.S. economy takes a while to rebound from the pandemic. SVB Leerink analyst Geoffrey Porges recently pointed out in a note to clients that biotechnology and pharmaceutical benchmarks topped the broader market during the 2001 recession, the global financial crisis, and during the current economic malaise.
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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.