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2 ETFs Fill The Prescription For High-Growth Biotech Stocks

Published 23/11/2021, 10:36
Updated 02/09/2020, 07:05

A number of health-care and biotech shares have recently been in the spotlight. In early October, Merck (NYSE:MRK)—covered in early November—gave a positive update on molnupiravir, a potential antiviral drug that it was developing with Ridgeback Therapeutics that has shown great results in the treatment of COVID-19. Then came similar news from Pfizer (NYSE:PFE) regarding Paxlovid, its antiviral drug candidate.

Meanwhile, Johnson & Johnson (NYSE:JNJ) announced it would spin off its consumer health division and concentrate mainly on pharmaceuticals as well as medical devices. And on Nov. 19, the CDC recommended COVID-19 vaccine boosters for all adults in the US. The announcement put BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA), JNJ and Pfizer stocks on investors’ radar.

So, today we introduce two exchange-traded funds (ETFs) that focus on biotech names. To put this discussion in context, readers might be interested to know that the Dow Jones Biotechnology returned 19.1% in the past 12 months. Similarly, the Dow Jones US Pharmaceuticals Index is up close to 21%.

1. VanEck Biotech ETF

  • Current Price: $194.04
  • 52-Week Range: $157.17 – $222.22
  • Dividend Yield: 0.32%
  • Expense Ratio: 0.35% per year

Biotechnology is “the use of living organisms or their products to improve human health and the environment.” The global biotechnology market is expected to be valued at $2.44 trillion by 2028, implying a compound annual growth rate (CAGR) of more than 15.5% between 2021 and 2028.

The VanEck Biotech ETF (NASDAQ:BBH) invests in health-care companies that develop and market drugs based mainly on genetic analysis as well as diagnostic equipment. The fund started trading in December 2011.

BBH Weekly Chart.

BBH, which has 25 holdings, tracks the MVIS US Listed Biotech 25 Index. The top 10 names make up about 62% of net assets of $564.6 million, which makes the fund top heavy. Around 85% of the companies come from the US, followed by Ireland and Germany.

Leading holdings include Amgen (NASDAQ:AMGN), Moderna, IQVIA Holdings (NYSE:IQV), Gilead Sciences (NASDAQ:GILD), ICON (NASDAQ:ICLR) and Vertex Pharmaceuticals (NASDAQ:VRTX).

The fund returned 21.7% in the past year and 13.2% in 2021. Potential investors looking for a fund concentrating on some of the most important biotech names could consider investing around $190.

2. Global X Genomics & Biotechnology ETF

  • Current Price: $20.95
  • 52-Week Range: $19.34 – $28.45
  • Expense Ratio: 0.50% per year

This fund brings the genomics dimensions into the health-care investment thesis. Genomics is “the study of an organism's genome—its DNA—and how that information is applied.”

This niche market is forecast to grow from almost $28 billion in 2021 to close to $95 billion in 2028, implying a CAGR of almost 19.5%. Health professionals highlight the importance genomic sequencing has been playing in developing an effective global response against the coronavirus.

The Global X Genomics & Biotechnology ETF (NASDAQ:GNOM) gives exposure to businesses that are likely to be at the forefront of advances in genomic science applications, including genomic sequencing, gene editing, genetic medicine as well as biotechnology. The fund was first listed in April 2019.

GNOM Weekly Chart.

GNOM, which has 41 holdings, tracks the returns of the Solactive Genomics Index. The leading 10 stocks comprise about 42% of net assets of $264.3 million.

Among the top names on the roster are Biomarin Pharmaceutical (NASDAQ:BMRN), Genscript Biotech (HK:1548), Arrow Electronics (NYSE:ARW), Qiagen (NYSE:QGEN), Sarepta Therapeutics (NASDAQ:SRPT) and Pacific Biosciences (NASDAQ:PACB) of California.

GNOM is down about 9.5% in 2021 but returned 5.1% in the past 12 months. After hitting a record high of $28.45 in February, companies in the fund have come under pressure, and the ETF has lost more than 24% of its value. Buy-and-hold investors who can handle the short-term swings in the fund could consider buying around these levels.

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