Life Science Mutual Funds And ETFs: Up 30-46% YTD
ETF investing, Portfolio Strategy, Long/Short Equity
Seeking Alpha Analyst Since 2007
"1,2,3 Click" -Investing in Life Sciences
The bull market in biotech is big and broad enough to make everyone look good and one fund or ETF can "deliver alpha" without exhaustive research or stock picking. Because institutions drive the sector it is elastic enough to feed on itself-"rising tide effect". Fundamentals and valuations for now do not matter, it is money flows. A portfolio approach works best and that is why the Rayno Life Science Portfolios have outperformed over 5 years. Life Science is a subset of the strong healthcare sector and includes diagnostics,drugs, and tools. Here is a quick review of the largest life science mutual funds and ETFs with NASDAQ up 19.4% YTD.
Three Leading ETFs
iShares NASDAQ Biotechnology ETF, Black Rock Advisors (IBB $192) up 40% YTD and 43% over one year.
The IBB is one of the largest life science ETFs with an average trading volume over 800k per day and a market cap of $3.32B.The Top Ten Holdings are 55.83% of the total with the usual suspects all large cap, well known companies: Amgen (AMGN), Celgene (CELG), Gilead (GILD), Biogen Idec (BIIB), Regeneron (REGN) etc. Expense ratio is 0.48%. Virtually every well known biotech company is in the ETF but many are below the 1% holding level.
SPDR S&P Biotech ETF, StateStreetgA Funds Advisor (XBI $119.36) up 35.85% YTD and 28% over one year.
The XBI is another fairly liquid ETF with an average trading volume of 300k and a market cap of $984M. The Top Ten Holdings are quite different than IBB but of course the usual suspects are included so it is a good complement to IBB. Many well known momentum stocks are among the Top Ten at the 2+% weighting level : Alnylam (ALNY), Onyx (ONXX), Isis (ISIS), Intermune (ITMN), Pharmacyclics (PCYC) and Celldex (CLDX). Expense ratio is 0.35%.
First Trust NYSE Arca Biotechnology Index Fund (FBT $64.55) up 40% YTD and 42.5% over one year.
The FBT is not as well known as other ETF funds with an average trading volume of 157k and a market cap of $625M. The Top Ten Holdings are weighted at 5%+ with a mix of large cap well know names like Amgen (AMGN) , Biogen Idec (BIIB) and Gilead (GILD) but also some novel picks like Incyte (INCY), Nektar (NKTR) and Qiagen (QGEN) so this ETF has comparable performance to IBB and is complementary to both other ETFs above. Expense ratio is 0.6%.
Four Sector Mutual Funds
Fidelity Select Biotechnology (FBIOX) up 45.74% YTD Five Star Rated Morningstar Fund
Top Ten Holdings are 59.7% of assets of $3.45B and include most well know large cap names with overweighting in Amgen (AMGN), Gilead (GILD) and Celgene (CELG). Also in Top Ten are Biomarin (BMRN), Onyx (ONXX) and Medivation (MDVN). Expenses are 0.83%.
T.Rowe Price Health Sciences (PRHSX) up 28.65% YTD Fund Five Star Rated Morningstar Fund
Total assets are $6.8B and are more diversified in healthcare sector with about 35% in biotech, 23.7% in services and 21.4% in pharmaceuticals. 17% is devices, life sciences and others.. Among the Top Ten are service companies such as Catamaran (CTRX) and McKesson (MCK). Expense ratio is 0.79.
Franklin Biotechnology Discovery A (FBDIX) up 46% YTD Four Star Rated Morningstar Fund
Top Ten holdings are 48.65% of total assets of $731M. The Fund is similar to Fidelity with well known large caps in Top Ten but with emerging biopharmaceutical companies Ariad (ARIA), Medivation (MDVN) and Pharmacyclics (PCYC) included. Expense ratio is 1.27% with a front end load on some shares.
Janus Global Life Sciences D (JNGLX) up 30 % YTD Four Star Rated Morningstar Fund
Net assets of $927M with only 29.8% in Top Ten holdings including both large cap drug, biotechnology and services: Aetna (AET), Gilead (GILD), Celgene (CELG), Express Scripts (ESRX) and Valeant (VRX.TO). Expense ratio 0.9%.
So if you want allocation in the life sciences pick one or more ETFs and one mutual fund and you are covered. Also review previous articles on this subject. Caveat emptor we are at an all time high.
Biotech Bull Market: Are ETFs Better Than Mutual Funds? - Seeking Alpha
Balance Your Portfolio With Three Stable Biotech ETFs - Seeking Alpha
Disclosure: I am long GILD.
Additional disclosure: Long FBIOX
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