Healthtech ETFs get shot in the arm

Sep 6th, 2017 | By | Category: Equities

ETFs tracking biotechnology and healthcare technology equities have posted impressive recent performance: since 21 August 2017, the Source NASDAQ Biotech UCITS ETF (LON: SBIO) is up 10.2% and the iShares Healthcare Innovation UCITS ETF (LON: HEAL) has returned 5.6%. In comparison, the S&P 500 rose just 2.0% over the same period.

Healthtech ETFs get shot in the arm

Healthcare technology ETFs have outperformed both the overall healthcare sector and the S&P 500 thus far in 2017.

The overall healthcare sector has delivered robust returns in 2017, with the iShares S&P 500 Healthcare UCITS ETF (LON: IUHC) posting gains of 17.8% between 1 January and 4 September 2017, compared to 10.6% seen by the S&P 500. The impressive start to the year (healthcare delivered the strongest of all sector performances in January) helped to give the biotech sector an initial boost.

But biotech ETFs have roared past the broader healthcare sector in more recent months with SBIO and HEAL up 25.2% and 22.6% respectively year-to-date (YTD).

Some market commentators have credited this recent outperformance to the sector picking up some of the slack caused by receding momentum in everyone’s favourite technology stocks, the FAANGs: Facebook, Apple, Amazon, Netflix, and Alphabet’s Google.

Also of note is industry giant Gilead Sciences’ announcement on 28 August of its acquisition of KITE Pharma for $11bn, presumably to take possession of the latter’s unique immune system cancer treatments. While relatively small compared to many healthcare acquisitions, the deal appears to have generated renewed confidence in the biotech space with momentum picking up across the sector following the revelation.

SBIO tracks the NASDAQ Biotechnology Index, which comprises biotechnology and pharmaceuticals companies listed on the NASDAQ Exchange. Stocks are filtered to adhere to minimum market capitalization and liquidity requirements. The remaining components are weighted by market cap with the largest five stocks capped at a weight of 8% and the remaining constituents capped at 4%.

The fund primarily consists of US stocks, which make up 94% of the index weight. The largest holdings are Biogen (8.8%), Gilead Sciences (8.8%), Celgene (8.3%), Amgen (7.8%) and Regeneron (7.2%).

The fund was launched in November 2014, has assets under management of $414m and has a total expense ratio (TER) of 0.40%. It saw $170 million of net inflows on the day after the US Presidential election alone, almost doubling in size.

HEAL tracks the iSTOXX Factset Breakthrough Healthcare Index, which includes companies in the STOXX Global Total Market Index that derive more than 50% of their revenue from operations that the research firm Factset defines as being within the breakthrough healthcare sector. Examples of activities falling within this sector include biological specimen storage, drug lead discovery, neurologic device manufacture and healthcare management software.

The largest country exposures are to the US (46.4%), Korea (15.6%) and Japan (9.6%). The largest components are Juno Thereputics (2.1%), Exelixis (1.7%), Myriad Genetics (1.6%) and Acadia Pharmaceuticals (1.6%).

The fund was launched in September 2016, has AUM of $53m and has a TER of 0.40%.

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