Biotech ETFs Lift Portfolios Higher than Broad-Based Healthcare ETFs

Amgen’s (AMGN) got a “Phase 3″ drug in its pipeline called, “Denosumab.” It has possibilities for a range of conditions from osteoporosis to treatment-induced bone loss to rheumatoid arthritis.

Genentech (DNA) has a “Phase 3″ hopeful with “Bevacizumab” (Avastin). This one’s designed to interfere with the blood supply to cancerous tumors. It is believed that if you cut off a tumor’s blood supply, you can cut off its ability to grow or spread.

Genzyme (GENZ) has an already-approved Leukemia fighter, ”Alemtuzumab,” at a Phase 3 level for use in fighting auto-immune diseases like multiple sclerosis. Researchers are finding that alemtuzumab may prevent the advancement of early stage active relapsing-remitting multiple sclerosis (RRMS) as well as restore lost functioning caused by the disease.

Evil drug companies out to make gobs of cash for shareholders? Or tireless warriors fighting a never-ending battle to increase the duration and quality of life? Truth is… the motive doesn’t matter.

Consider the 2-year performance of 3 popular biotech ETFs and 3 popular health care ETFs. In spite of broad-based health care’s anemic efforts to forge higher in 2009, it appears that biotech may be the better way to play the aging demographic game.

Broad-Based Health Care Versus Biotech Over 2 Years
				2-Year %
First Trust Biotech (FBT)				13.2%
iShares Nasdaq Biotechnology (IBB)				-1.4%
SPDR State Street Biotech (XBI)				-1.6%
iShares DJ Health Care (IYH)				-12.3%
Vanguard Health Care (VHT)				-12.3%
SPDR Select Health Care (XLV)				-13.8%

Biotech’s significant outperformance over broader healthcare during the bear market may suggest a recalibration of risk. Biotech used to be one of the most risky investment areas; however, diversified biotech ETFs not only mitigate some of that risk, but an aging world population is helping drug creators secure more believers.

First Trust Biotech (FBT) continues to be a bit of enigma in its outperformance. However, it becomes less enigmatic when one investigates how FBT reconstitutes its equal-weighted index quarterly.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.