Surprising ETF Losers Of 2016

May 11, 2016

Last week, renewed economic jitters pushed the S&P 500 briefly into the red for the year. The stock index has since bounced back a bit, and currently has a year-to-date total return in the 2.5% range.

Certain parts of the market—such as energy and utilities—have done even better, handily outperforming the S&P 500. On the other hand, a few notable areas have done much worse than the broader market.

These are some of the surprising losers of 2016 year-to-date:

Biotechnology

The worst-performing non-leveraged/non-inverse ETF in 2016 so far is a biotech fund, the BioShares Biotechnology Clinical Trials Fund (BBC), which lost 37.3% year-to-date through May 10.

It's not the only one. From the ALPS Medical Breakthroughs ETF (SBIO) with a 29.8% loss, to the iShares Nasdaq Biotechnology ETF (IBB | A-67) with a 22.4% loss, there's a plethora of biotech ETFs deeply in the red this year. What’s going on?

YTD Returns For BBC, SBIO, IBB

One reason for the sell-off may be political uncertainty. Presidential candidates Hillary Clinton and Donald Trump have both promised to bring drug prices down if they are elected to office.

Clinton went as far as to blame the pharmaceutical and biotechnology industries for price gouging, and said she would speed up the approval of generic drugs to combat high prices.

Meanwhile, high-profile cases of drug price inflation by the likes of Valeant Pharmaceuticals and Turing Pharmaceuticals have only added to the negative perception of the industry.

Yet despite these head winds, some investors believe the long-term future for biotechs remains bright.

“Health care and biotech continue to be high-probability, long-term, successful growth sectors, [and] smart investors take advantage of these downdrafts by adding to their positions,” Steve Janachowski, president and chief executive of Brouwer & Janachowski, recently told the Wall Street Journal.

Indeed, biotech ETFs remain popular for investors. The aforementioned IBB saw $100 million in inflows so far this year, according to FactSet data, and now has $6 billion in total assets. It's also done remarkably well over longer-term time horizons, returning 113% over the past five years.

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