Positive Prognosis For Biotech ETFs

Includes: IBB, XBI
by: Tom Lydon

The biotechnology sector has positive long-term implications and the indecision that loomed over the industry has subsided, according to S&P Capital. Exchange traded funds that track this sector are a sound choice for risk mitigation while gaining exposure to growth going forward.

"Now unlikely to be repealed, healthcare reform means some positive and negative things for the drug industry. Medicaid will start covering more people in 2014, which should be a positive for volumes and the drug industry. On the negative side, higher rebates already are in place for Medicaid patients, which are bad for biotechs because they mean biotechs see lower net prices for their drugs," Robert Goldsborough wrote for Morningstar.

ETFs have become the most efficient manner to invest in the biotechnology industry. Since many of the companies are small- or mid-cap and are generally start-ups, ETFs can mitigate risk while allowing investors exposure to any upside.

The SPDR S&P Biotech (NYSEARCA:XBI) has gained roughly 30% over the past year ended April 30, 2013. The fund has 100% of holdings in the biotech industry.

The iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB) has returned 42.81% for the year ended April 30, 2013. The ETF offers exposure to biotechnology and the pharmaceutical industry. IBB is currently rated "Marketweight".

S&P Capital is giving a positive outlook for the industry in 2013 due to the advancements in therapies that have gone through clinical testing and are getting ready for commercialization. Furthermore, the United States has become more accommodating to the approvals process. There are currently 39 new therapies that have been approved by the FDA last year, paving the way for treatments to roll out ahead of scheduled dates this year.

iShares Nasdaq Biotechnology Index Fund

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.