Can The Run Continue For Biotech ETFs?

biotechnologyBiotechnology firms are among the fasting growing companies in the health care world. With the U.S. market soaring, a high growth and high beta sector like biotech is performing remarkably well, clearly outpacing the overall market and broader health care sector.

This is primarily attributable to increased mergers and acquisitions, promising new drugs and their approval, ever-increasing health care spending, and an insatiable demand for new drugs.

Mergers & Acquisitions and New Products

Recent mergers and acquisition talks/rumors from companies like Onyx Pharmaceuticals (NASDAQ:ONXX) and Alexion Pharmaceuticals(NASDAQ:ALXN) have given a boost to the biotech sector. Onyx has placed itself on the market after turning down an offer from biotech major,Amgen (NASDAQ:AMGN).

Further, the efforts of biotech companies to launch more drugs for various diseases could propel the biotech sector even further in the months ahead.

Other Factors

Another bullish trend seen in the sector is expansion into emerging markets. Several companies whether big or small, are looking to expand their presence in India, China, Brazil and other developing markets.

Moreover, companies like Merck (MRK), Amgen, Biogen (BIIB), Actavis (ACT) and Teva Pharmaceutical (TEVA) are eyeing deals for the development of highly lucrative biosimilars, generic versions of biologics.

The biotech sector is also poised to benefit from the impending Obamacare changes. On the one hand, the sector managed to avoid the tax issue of the medical device space, and on the other, many of its new drugs will find a larger base of insured persons across the U.S., theoretically boosting profits  (read:Biotechnology ETF Investing 101).

ETF Angle

These developments are fuelling growth in biotech companies, leading to a rally in their share prices. This is especially true given impressive levels of momentum in the biotech ETFs. In fact, the biotech ETFs have delivered as much as double returns than the broader health care fund (NYSEARCA:XLV) over the past six months.

This suggests that a tilt towards the biotech is definitely a good idea, as these have fought through the shutdown inspired volatility, and are now in prime position to finish out the year on a strong note.

Below, we highlight the top three biotech ETFs that have delivered double-digit returns over the past few months. This trio could be excellent plays for investors who believe that biotech will continue to move upward, and lead the health care world higher in the current growth-focused market (see: all the Health care ETFs here):

Market Vectors Biotech ETF (NYSEARCA:BBH)

This fund tracks the Market Vectors US Listed Biotech 25 Index, holding 26 securities in the basket. It has amassed $416.2 million in its asset base and sees good trading volume of nearly 107,000 shares a day. The fund charges a reasonable 35 bps fee per year.

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