Investors typically don’t like uncertainty, and those buying shares of biotech exchange traded funds especially don’t.
A week ago the House passed a health-care bill meant to repeal and replace the Affordable Care Act. There is a long way to go before it becomes the law of the land. The bill has now landed with the Senate and will likely change a great deal in the months to come.
For the most part, health-care stocks have sloughed off the news. But one corner of the health-care market that hasn’t are biotech ETFs. In the wake of the House’s passage, First Trust NYSE Arca Biotechnology Index Fund has shed nearly 3% since las Thursday’s close, iShares Nasdaq Biotechnology ETF is off 2.4%, SPDR S&P Biotech ETF is down 2.76% and VanEck Vectors Biotech ETF is off 3.6%, according to FactSet.
By comparison, pharmaceutical and broad health-care ETFs are down only slightly during the past week. Health Care Select Sector SPDR Fund, for example, is off 0.9% over the same period, while iShares U.S. Healthcare ETF and Vanguard Health Care ETF have shed 1% and 0.9%, respectively, according to FactSet.
The broader health-care ETFs have likely sold off less because the health-care plan has far to go before anything is certain in terms of policy, and because they invest in companies that are generally less volatile than some of the smaller biotech companies.
Shares of biotechnology ETFs had done very well this year. Many of the ETFs have gained 10% or more this year through Wednesday, according to Morningstar Inc. But as policy uncertainty has increased around biotech, the rally has begun to pullback.In March, President Donald Trump tweeted that “a new system” would mean competition and lower pricing in the drug industry.
There good reason why investors are selling biotech ETFs. The group are higher-risk stocks that tend to rally more with any good news and fall further with any news that’s perceived to be negative, says Neena Mishra, director of ETF research at Zacks Investment Research.
Those ETFs with greater exposure to the more volatile and smaller-cap biotech stocks, including First Trust NYSE Arca Biotechnology Index Fund and SPDR S&P Biotech ETF, have been harder hit in the past week than those that focused more on large-cap companies, notes Todd Rosenbluth, director of ETF and mutual-fund research at financial data and analysis provider CFRA.
Some investors may be asking whether a lot of disruption in the insurance marketplace and the movement of significant numbers of individuals to insurance plans with limited benefits and higher deductibles and co-pays may have an acute effect on some higher-cost drugs, says Geoffrey Porges, a senior biotech analyst at Leerink Partners.
“I think there’s a certain amount of concern about that on the part of investors,” says Mr. Porges, though he adds that there’s nothing in the health-care plan that he’s aware of that says the impact will be felt there.
Earnings from biotechnology companies also have been a mixed bag of late, with some missing on revenue expectations, putting their shares under pressure, says Ms. Mishra. In addition, drug pricing remains a concern, and there’s some regulatory risk there, she says.
This latest weakness in the shares is likely to reverse itself, says Mr. Porges. We’re in a growth cycle with rising rates and falling unemployment, which tend to be an environment in which at least the growth end of biopharma stocks look pretty attractive, he says.
Health-care spending is rising a lot in emerging markets and there’s an increasing need for medication globally as the population ages, Ms. Mishra says. Investors should remember that biotech is a high-growth, high-risk sector, which is to the broader health-care sector what semiconductors are to the technology sector, she says.
“Both have higher growth prospects, but investors should be prepared for higher volatility as well,” she says
May 12, 2017 at 12:55AM
from Daisy Maxey
No comments:
Post a Comment