After languishing in the latter stages of 2018, the iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB) , the largest biotech exchange traded fund by assets, and the SPDR S&P Biotech ETF (XBI) are sporting double-digit gains early in 2019. Some analysts see the potential for these biotech ETFs and other to lure more assets from investors.
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 of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
Despite XBI’s 2019 bullishness, “the ETF is still down about 15% from its third-quarter levels. That means that the huge outflows in the fourth quarter still have more room to reverse, and XBI and IBB–both up double-digits year to date–could see more money piling back in,” reports Teresa Rivas for Barron’s.
Given the low valuations, ongoing broad market support and diminished political risks, pharma stocks may continue to maintain their forward momentum. Other data points have been lifting biotechnology stocks as well.
” Jefferies ‘ Michael Yee writes that third-party data shows that the fourth quarter saw not only the biggest actively managed fund outflows in the biopharma space in 15 years, but outflows that were double the biotech bear market of 2016,” according to Barron’s.
Year-to-date, investors have pulled nearly $600 million combined from IBB and XBI. XBI is an equal-weight fund.
“A continued recovery in the XBI would likely to get more biopharma fund flows pouring back in during the first half of the year…We think fund managers will be forced to ‘chase’ the recent performance given they are generally quite under-weight the group,” Barron’s reports, citing Jefferies’ Yee.
Healthcare ETFs, including biotech funds, could benefit from politicians’ plans to lower drug prices, something the White House took aim at last year. The administration has focused primarily on middlemen like pharmacy-benefit managers instead of manufacturers. The new policies have a more subtle affect on the overall industry as it may affect sales of certain blockbuster drugs but damage the share prices of smaller companies.
The iShares Nasdaq Biotechnology ETF (IBB) was trading at $109.88 per share on Wednesday afternoon, up $0.46 (+0.42%). Year-to-date, IBB has gained 2.91%, versus a 3.48% rise in the benchmark S&P 500 index during the same period.
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