Lately, investors have begun to move away from sectors which offered higher dividends with lower risk towards risk prone sectors. In fact, some low risk investors who were playing a safe game in the bond markets have also started to give up on fixed income. This essentially signifies a move from sectors such as utilities and real estate to the likes of consumer discretionary, financials and biotechnology stocks.
The Healthcare sector, and biotechnology in particular, has been in the limelight in 2013. During the first half of this year, biotechnology funds have posted an impressive performance with the momentum expected to sustain the segment for the rest of the year. For a while there was a shallow pullback in both August and early October, but the sector seems to be back on track once more (Read:Top ETFs of the First Half of the Year).
In fact, biotech as a sector has shown high growth and high beta outperforming the broader markets. With ever-increasing healthcare spending and an insatiable demand for new drugs, the biotechnology sector looks poised for good growth going forward.
Furthermore, the U.S. biotech sector represents an attractive investment opportunity thanks to increased M&A activity. This helped the sector to be one of the top performers in 2012 and the trend continues this year.
“There has been a lull in M&A over the past year, but everything picked up over the summer with the recently agreed upon deal between Amgen and Onyx,” said Steve Silver, a biotech equity analyst at S&P IQ.
The Risks Involved
Though investing in this sector looks alluring, the risk here is huge. The securities in this sector are largely subject to regulatory approval from the Food and Drug Administration (FDA). If a company gets a drug approved by the FDA, its stock may gain pretty well but any regulatory failure may weigh heavily on the stock.
Ways to Benefit?
Investing in the biotechnology sector has proven to be a safe choice for investors who can endure volatility. In fact, with an aging population, the sector is poised to benefit. At this time investing in Biotech ETFs may be a smart move for investors.
The bullish fundamentals of the sector make it important to find a top ranked pick in this segment. In order to do this, investors can look at the Zacks ETF Rank and find the top biotech ETF (read: Play Surging Health Care with These Small Cap ETFs).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, and style box or asset class.
Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while these also receive one of the three risk ratings, namely, Low, Medium or High.
The aim of our models is to select the best ETF within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.