Stocks put in quite the reversal in yesterday’s session. The S&P 500 was trading below Monday’s low before flipping the switch and closing green by .5%. The Russell 2000 was the clear winner, stacking on 1.65%.
If the biotechnology industry were a sector, it would be the second-best performing one in 2020. Biotech stocks collectively have generated 21% total returns (price plus dividends) on average, lagging only technology, which is up 26% YTD. If you go back over the past decade, it has returned 524%. That beats every last sector, it beats the broader health care sector by 200 percentage points, and it’s nearly double the S&P 500’s total return in that same time frame.
There’s clearly money to be made in the discovery of new treatments for anything from COVID-19 to cancer. But biotech stocks carry substantial risk. While positive data from a drug trial could send their stocks soaring, a setback or failure can crush their returns, making them difficult buy-and-hold investments.
For those looking for a long-term investment in biotech with less risk, biotech ETFs offer an answer. Instead of betting on individual drugs or companies, an ETF allows you to spread out risk across dozens or even hundreds of firms at a time.
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The Principal Healthcare Innovators ETF (BTEC) is a promising fund geared toward finding smaller, innovative companies that might get overlooked, with a focus on active investment in early-stage R&D.
BTEC seeks out health care firms from the Nasdaq US Benchmark Index, but excludes the top 150 securities by market size, while also excluding companies with low trading liquidity. How it identifies “innovators,” however, might seem a little unorthodox: Specifically, it seeks out “non-earners by means of having negative earnings over the prior 4, prior 8 or future 4 quarters at least half of the time.” In other words, it selects companies with inconsistent or negative profits, the idea being that, for now, they’re pouring every last cent into R&D.
BTEC then picks the best-ranked 150 to 200 companies based on its scoring measures, then weights those stocks by size, with no stock exceeding 3% in rebalancing, which happens twice a year. At the moment, Moderna is the top holding at 5.2% of assets, by virtue of its gains since the last rebalancing. Moderna, currently best-known for its COVID-19 vaccine candidate, was founded with the intention of building a large pipeline of drugs using messenger RNA technology.
- Net Assets — $101.1 million
- Yield — 0.00%
- Expense Ratio — 0.42%
BTEC also holds BioMarin Pharmaceutical (BMRN), Seattle Genetics (SGEN) and Exact Sciences (EXAS) among others.
Of course, compared to other biotech investments, a less risky ETF investment probably won’t provide exponential returns in the near term.
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When this tiny company reveals it’s indisputable findings, it’s poised to unleash a $15 trillion tidal wave of new money. This means the small firm’s share price could soar by 311,478% and turn every $500 that you put down into more than $1.5 million.
Jeff Bezos, Peter Theil, the Rockefellers, the Mayo Clinic, the world’s top doctors, and the most brilliant biomedical entrepreneurs have all been funneling hundreds of millions of dollars into this small biotech firm ahead of this early trial data…
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