Il biotech sector in recent years it has undergone a real evolution going from being considered as a niche sector accessible only to a few experts to being an integral part of our daily lives, with smartphone e SmartWatch that record our heartbeats at every slightest movement and collect valuable data for the medical research.
Le biotechnology in recent years they have had one exponential growth, not only in terms of acquired knowledge, research and products but also in terms of market valuation, to the point of being the best sector of the market for 5 years in a row (it is also for 2015, so far).
Returning from the dot.coms of the 2000s, the question that always arises in these cases is: Are we facing a speculative bubble about to burst?
A quick analysis by Marshall Gordon, industry analyst Healthcare Logistics on large cap (large-cap companies in the sector) underlines how the P/E of companies in the 2000s were much higher than today and, in many cases, the companies themselves were unable to make profits since the search didn't lead to anything actually concrete. Today the situation turns out to be different in that earnings growth is defined thanks to the structural strengthening and the tangible results that several companies are achieving, help too by numerous FDA approvals for new drugs and treatments.
Table at FIRSTonline.info
Are you interested in the sector? Here are two interesting financial instruments that could be right for you and your wallet.
2 ETFs to invest in biotech
A first ETF that we can consider is the SPDR S&P Biotech (ISIN code US78464A8707) which aims to replicate the performance of the S&P Biotechnology Select Industry Index. The strategy is very simple: at least 80% of the fund is invested in companies of the index, thus ensuring a good replication of the benchmarking.
The second ETF being analyzed is the iShares Nasdaq Biotechnology (ISIN code US4642875565), whose purpose is to faithfully replicate the performance of the US Nasdaq Biotechnology stock index. The fund concentrates its investments in companies engaged primarily in research for the discovery or development of new treatments for diseases.
Through this simple table we can compare the returns of the ETFs taken into consideration, of the relative ones benchmarking benchmark, the S&P500 index and the Nasdaq index.
The two ETFs considered are fundamentally very similar to each other. Both invest in US companies in a specific sector so the diversification effect of the underlying fund is very limited (our risk indicator stands at 41,1/100). If, on the other hand, you are worried about the liquidity of the stock, you can be quite calm, as our liquidity indicator has a value of 59/100 for both instruments, so in the event of a sudden disinvestment of the investment you will not have major problems selling the tool on the market.
How did the biotech sector fare?
As already mentioned above, the sector outperformed both the general market (represented by the S&P 500 index) and the market for technology stocks in various sectors (represented by the Nasdaq index), reaching a triple-digit growth (obviously also replicated by the two ETFs we have taken into consideration). Worthy of note was certainly the biotech's ability to withstand these last three months of market nervousness and to be able to obtain a good positive performance.
Obviously we are always talking about financial assets that have their own risk profile, so it is immediate to ask what are the main risks of investments in the biotech sector.
The risks of the biotech sector
- The biotech sector, a subset of the Healthcare sector, is essentially made up of companies whose activity and revenue trend (and therefore the company's ability to be profitable) can depend even only on the success or otherwise of a drug. The risks in common with the pharmaceutical sector are related to competition from generic drugs, to the limited diversification of revenue sources and otherspossible bureaucratic stiffening by the authorities. It is precisely for this reason that it is preferable to invest in an ETF rather than in a single share, especially with a view to diversifying your portfolio.
- Instead, in common with the technology sector there is thehigh volatility of securities.
- One risk to always keep in mind, as we are investing in US currency instruments, is exchange rate risk: any depreciation of the US dollar, currently not considered possible by the market, could reduce the effective return.
It is undeniable that the biotech sector must be considered as a Growth sector, a characteristic that it inherits from the technology sector, with high expectations and high valuations which are supported, in this case, by a concrete possibility of growth. For these reasons, it might be interesting to diversify your portfolio.
