New Trade for December 20th, 2022

One area of the market where stocks can be found to produce 10x, even 20x returns, regardless of what’s happening elsewhere, is biotech. Looking at the performance of the past ten years, if the biotechnology industry were a sector, it would be the best-performing one. Over the past decade, biotech stocks have returned 524%. That beats every last sector, it beats the broader healthcare 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 the flu 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.  

Today we’re highlighting a rare, buy-and-hold biotech investment that provides ground-floor access to the innovators of tomorrow, along with their potential nose-bleed returns, while minimizing risk.

Dylan Jovine

Tiny Biotech Wins $75 Billion Patent

Cambridge firm proves its possible to “Find & Replace” cancer cells. The Wall Street Journal reports this small biotech is “Transforming Medicine.” No wonder Goldman Sachs & Morgan Stanley have been quietly buying shares. [Get the name of this little-known stock here >>>.]

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Many biotech companies are reasonably small startups. This means if a successful product is developed (then revenues, then earnings), share prices can skyrocket. This can happen regardless of headwinds and hurdles that can arise for the overall market.  

However, many investors who come to the biotech space to cash in on solid returns get burned by seemingly promising startups that only end up wasting investor capital on dead-end technologies. One solution for investors looking to gain access to companies at the forefront of innovation through a diversified basket of biotech names is the First Trust NYSE Arca Biotechnology ETF (FBT).

FBT gives exposure to the best in biotech through its focused yet diversified list of 30 names, including giants such as Moderna (MRNA) but also $5 billion Alkermes PLC (ALKS).   Without a specific sector classification scheme, the fund’s broad exposure could include access to pharmaceuticals and medical technology in addition to traditional biotech.  

FBT is one of a handful of biotech ETFs available, offering exposure to a corner of the market that can perform well during periods of consolidation and is capable of big jumps in the event of significant drug approvals.   FBT’s portfolio is somewhat limited, though its equal-weighted methodology ensures that assets are balanced across all components. That feature can be particularly important in the biotech space, where specific companies are capable of turning in significant gains over short periods.

First Trust NYSE Arca Biotechnology ETF (FBT) Data Summary

• Weighted Average Market Cap  $28.94B
• Price / Earnings Ratio   41.7
• Price / Book Ratio  3.69
• YTD Daily Total Return  -3.77%
• Yield  0.00%
• Expense Ratio  0.55%
• Net Assets   1.46B
• Number of Holdings  31
• Top Holdings  BioNTech (BNTX), Exact Sciences (EXAS), Moderna (MRNA)