Market Overview

Biotech Breakout Boosting ETFs

The four horsemen of the biotechnology – Amgen (NASDAQ: AMGN), Biogen Idec (NASDAQ: BIIB), Celgene (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD) – all hit new 52-week highs earlier Thursday.

Predictably, this biotech breakout has been good news indeed for the four horsemen of biotech ETFs.

In further evidence that an equity-based ETF's underlying holdings are the tail that wags the dog, or the ETF in this case, the iShares Nasdaq Biotechnology Index Fund (NASDAQ: IBB) is up nearly 1.2 percent today on volume that is well above the daily average.

IBB, with $2.53 billion in assets under management, is the largest and most heavily traded biotech ETF. Gilead, Amgen, Celgene and Biogen, in that order, represent four of IBB's top-six holdings and combine for over 29 percent of the ETF's weight. That helps explain IBB's ascent to a fresh all-time high today.

However, small ETFs with lighter weights to biotech's Big Four are getting in on the act as well. The First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT) also joined the biotech ETF all-time high club earlier today. That ETF is up about one percent. FBT, which has $283.4 million in AUM, allocates approximately 22 percent of its weight to the aforementioned quartet of biotech giants. Biogen, Amgen and Gilead represent FBT's largest, third- and fourth-largest holdings respectively.

FBT is more volatile than IBB. The former has a three-year standard deviation of 26 percent and a beta of 1.19 compared to 17.1 percent and a beta of 0.91 for IBB's underlying index, according to First Trust data. Over the past six months, however, FBT has rewarded investors that have embraced that added volatility by returning 15.7 percent compared to 10.7 percent for IBB.

The SPDR S&P Biotechnology ETF (NYSE: XBI) missed out on a new all-time high by mere pennies earlier today, but the $741 million ETF is still up 1.1 percent. XBI's performance is made all the more impressive by the fact that this is not market cap-weighted ETF. Rather, XBI uses an almost equal-weight approach to build its 53-stock lineup.

That means Amgen, Biogen, Celgene and Gilead do not even combine for 10 percent of XBI's weight. Long-term investors have not missed out on much though because with the benefit of Thursday's gain, XBI has now doubled since its 2006 debut.

Regarding volatility, XBI is more comparable to FBT with annualized volatility of 21.73 percent and a beta against the S&P 500 of 1.16, according to State Street data.

In the "don't you forget about me" realm of biotech ETFs, the Market Vectors Biotech ETF (NYSE: BBH) leads a somewhat anonymous existence relative to its rivals, but that should not be the case. On better than double the average daily turnover, BBH is up 1.4 percent today and touched a new 52-week high as well.

For investors that want ample exposure to biotech's Big Four, BBH is the play. The $210.1 million ETF allocates over 41 percent of its weight to those four names and the quartet represents BBH's four largest holdings. Combined, Amgen and Gilead are 25.5 percent of BBH's total lineup. BBH and XBI are the cheapest of the four major biotech ETFs with annual fees of 0.35 percent. FBT charges 0.6 percent while IBB charges 0.48 percent.

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Posted-In: Long Ideas News Sector ETFs Short Ideas Technicals FDA Intraday Update Markets Best of Benzinga

 

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