One Health Care ETF Stands Above All

May 02, 2019

Manisha SamyFears about “Medicare for all” and politics in general have weighed on health care stocks this year. The group, as measured by the Health Care Select Sector SPDR Fund (XLV), is the worst-performing sector within the U.S. stock market in 2019—by far. Through the close of trading on April 30, XLV was up a relatively meager 3.5%, well behind the 18.2% year-to-date return for the S&P 500.

But as health care as a whole has lagged the market, one health care ETF has bucked the trend in a big way. The actively managed ARK Genomic Revolution ETF (ARKG) surged 36.4% so far this year, easily making it the top health care ETF of the year. It’s also outperformed since its October 2014 inception, rising 68.2% versus 42.1% for XLV.

To discuss why the fund has been doing so well in the face of strong head winds, recently spoke with Manisha Samy, genomics analyst at ARK.


YTD Returns For ARKG, XLV, S&P 500 Health care is the worst-performing sector of the year and is underperforming the S&P 500 by its largest margin in decades. Why is the sector doing so poorly?

Manisha Samy: Pharmaceutical companies are up against numerous patent cliffs and generic threats, which we believe are the primary drivers of health care’s poor performance and underperformance against the S&P 500.

Additionally, price hikes have cast a dark cloud over already commercialized drugs, further exacerbated by the upcoming presidential election, causing uncertainty on reimbursement and utilization. We believe companies that fail to adopt novel treatment paradigms will be disintermediated, as witnessed by large pharma’s rush for M&A opportunities with smaller biotech companies. With a year and a half remaining before the next presidential election, is the rhetoric against the health care industry only going to get worse from here? What does it mean for health care stocks?

Samy: We believe health care has been undervalued. While we may see continued volatility with the upcoming presidential election, we believe the companies that fail to adopt newer treatment modalities will be the most negatively impacted. The FDA has been supportive of cell and gene therapies, and we expect this to bolster the biotech stocks that are driven by innovative platform technologies. The ARK Genomic Revolution ETF (ARKG) is strongly outperforming the broader health care sector, with a 36% gain compared with 3.5% for the Health Care Select Sector SPDR Fund (XLV). Why is that?

Samy: Health care, in addition to how we treat and pay for diseases, is witnessing a remodeling driven by innovation and technological advancement. Today we’re witnessing a shift that’s now favoring the biotech and genomic stocks focused on curative medicines, while large pharma companies and “me-too” companies—those that manufacture drugs structurally very similar to already-known drugs, with only minor differences—are suffering.

We seek to invest in biotech and genomics stocks focused on platform technologies that are decreasing costs of research while increasing novel scientific revelations. Driven by sequencing cost declines and CRISPR genome-editing technology, novel immunotherapies, gene and gene editing therapies are attempting to cure disease rather than just treat symptoms.

We believe we’re in the early stages and are beginning to see proof that these treatment modalities are working, delivering better quality of life to patients and reducing the burden of disease dramatically.

Uniquely, ARKG also seeks to invest in the enablers of the genomics revolution, including stocks providing exposure to artificial intelligence, enhanced diagnostics, and companies that increase clinical trial productivity.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

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