Multiple factors are setting the sector up for further growth in 2014.
So far in 2013 biotech ETFs have garnered some of the best returns of all U.S. ETFs, fueled by increasing mergers and acquisitions, promising new drugs coming to market, and more accommodative regulators willing to push all of those drugs out with greater efficiency.
Moreover, with equities markets higher on the year, it’s hardly a surprise that a high-growth and high-beta sector like biotech would be outperforming broad U.S. benchmarks like the S&P 500 Index, which is up by more than 20 percent.
Funds such as the Market Vectors Biotech ETF (BBH | A-56), the iShares Nasdaq Biotechnology ETF (IBB | A-55) and the SPDR S&P Biotech ETF (XBI | A-33) are up 47.78 percent, 42.24 percent and 38.82 percent, respectively, year-to-date as of Sept. 6, according to data compiled by IndexUniverse.
IBB, the behemoth in the space, is now a nearly $4 billion fund, and it has pulled in more than $500 million in fresh money this year, according to IndexUniverse’s “ETF Fund Flows tool.” BBH, a $400 million ETF, has had inflows of $148.6 million, while the $1 billion XBI has gathered $116.4 million in new assets this year.
Acquisitions in the industry—specifically cancer drugmaker Amgen Inc.’s (AMGN) $10.4 billion buyout of competitor Onyx Pharmaceuticals (ONXX) and the rumored buyout of rare-disease drugmaker Alexion Pharmaceuticals (ALXN) by Swiss drugmaker Roche Holdings AG have certainly propped up prices of individual shares and ETFs.
“There has been a lull in M&A over the past year, but everything picked up over the summer with the recently agreed upon deal between Amgen and Onyx,” said Steve Silver, a biotech equity analyst at S&P IQ.
“The two areas where I would expect to be more heavily involved in M&A are cancer and rare diseases because they’re hot areas within drug development these days,” he added.
Top 10 YTD Performers
|Ticker||Name||YTD Performance||Weekly Performance||AUM ($, mm)|
|QCLN||First Trust NASDAQ Clean Edge Green Energy||60.24||-1.07||69.15|
|KWT||Market Vectors Solar Energy||48.83||1.50||17.07|
|BBH||Market Vectors Biotech||47.78||-0.13||387.89|
|PBE||PowerShares Dynamic Biotech & Genome||45.81||-0.38||206.70|
|GEX||Market Vectors Global Alternative Energy||45.68||-1.58||82.87|
|IBB||iShares Nasdaq Biotechnology||44.24||0.29||3,706.70|
|FAN||First Trust ISE Global Wind Energy||39.48||-2.32||53.28|
|QQQC||Global X NASDAQ China Technology||39.19||1.66||3.90|
|XBI||SPDR S&P Biotech||38.82||-0.21||1,027.80|