These Composite Models Take Advantage Of The Biotech Rally

This article was first published on HedgeCoVest, a real-time hedge fund replication platform.

The biotech sector has been on an incredible run over the last four years and so far in 2015, the rally has continued.

In the last four years, the iShares Nasdaq Biotechnology ETF IBB has gone up 246 percent compared to the 73 percent gain for the S&P. Incredibly, since President Obama took office in January 2009, the IBB is up 438 percent.

Many investors thought that the healthcare reform that the newly elected President sought would make it tough on the biotech, pharmaceutical and healthcare sectors, but all three sectors have outpaced the overall market since January 2009.

Turning the focus to 2015, the IBB rose almost 19 percent during the first three and a half months of trading while the S&P rose a meager 2.84 percent during this same time frame.

The IBB is the most actively traded biotech ETF with the second most active being the SPDR S&P Biotech ETF XBI. The XBI was up 24.6 percent from the beginning of the year through April 13.

With the biotech sector performing so well so far this year, it's worth it to compare the IBB and XBI to the HedgeCoVest composite models that invest in the biotech sector.

There is the HedgeCoVest Biotech Long-Only model and the HedgeCoVest Biotech Long/Short model.

The HedgeCoVest composite models have not only kept pace with the ETFs, they have both exceeded the performance of the iShares Biotech ETF. The HedgeCoVest Biotech Long-Only model has produced a gain of 29.48 percent from the beginning of the year through April 13 and the HedgeCoVest Biotech Long/Short model gained 22.8 percent during the same time frame.

With the biotech sector moving up on what seems like a straight line, it is interesting to see the actively managed models on the HedgeCoVest platform keeping pace with the passive portfolios of the ETFs.

The one time period where the biotech sector saw much of a downdraft was from March 19 through March 26.

Looking at the chart, one can see that both the IBB and XBI ETFs moved down rather sharply while the two HedgeCoVest models held up better.

The XBI fell 9.83 percent during the week in question while the IBB fell 6.69 percent.

The HedgeCoVest Long-Only model fell 1.93 percent during the pullback in March while the HedgeCoVest Long/Short model only dropped 0.94 percent during this same period.