Freepik

Life Science Investing -Diversify with ETFs and Mutual Funds

• Position your portfolio broadly with Biopharma and MedTech holdings.
• Trade and track momentum with stock picks and XBI.
• Large caps rule until momentum returns to SMID.

We took a look at Life Science Funds and ETFs to compare performance and find new stock trades. We considered mainly funds we held over several years. The life science sectors and products considered by these funds include biopharma, MedTech, tools and diagnostics. Per my last post I have said that we are in a bear market in biotech because the IBB is up only 6.57% over five years. MedTech tends to be less volatile with better long term returns because the companies have better financing and are profitable earlier because the product cycles are faster. Note 2022 was a bad year with a 2021 peak hurting five year averages, but previous years were good. Since December 2022 the IBB is flat but consolidating.in the $125-135 range.

Both charts are monthly long term showing the sell-off in 2021 but a speculative blow-off top in the XBI.

Here are the Funds with Top Five Holdings;

Fidelity Select Biotechnology (FBIOX) YTD up 1.11% at $16.46, 5 Year down 32.46%. Top Five Holdings: ABBV, KRYS, VRTX, REGN, BIIB.1 yr up 3.91%

Fidelity Select Medical Technology and Devices (FSMEX) YTD down 2.14% at $62.11, 5 Year Ave up 7.5%. Top Five Holdings: TMO, DHR, BSX, SYK, PEN.

T.Rowe Price Health Sciences Fund (PRHSX) down 2.15 % YTD at $89.85, Year Ave up 7.79%. Top Five Holdings : UNH, LLY. TMO, MRK, ISRG.

And here are the widely traded ETFS:

iShares Biotechnology (IBB) down 2.71% YTD at $129.47 , 1 year up 6.05% , 5 yr. up 6.51%.  Top 5 holdings: VRTX, AMGN, GILD, REGN, IQV.

SPDR S&P Biotech (XBI)  down 4.47% YTD at $79.29, I year down 5.56%,  5 yr down 20.35%. Equal weight small cap typical holdings: BBIO, HALO, NVAX,TWST,CPRX.

iShares U.S. Medical Devices (IHI) up 3.635,YTD at $52.78, 1 year up 3.63%, 5 yr up 43.41%. Top Five Holdings: TMO,ABT,MDT, ISRG, BDX.

I have few more trades that look interesting but for now given that it’s a tough market where only great stock picking can really win, case in point Lilly (LLY). The market downturn in 2022 can be attributed to political overhang from aggressive policies pursued by the Biden Administration. For example the legislation regarding negotiation of drug prices by Medicare and the FTC challenge to M&A for example deals by Amgen and Pfizer. Now that there is more clarity on which drugs and companies are affected we can invest accordingly.

But it is important to track sectors of the market because trends to create volatility. For example the COVID pandemic created a diagnostics and vaccine revenue bubble that dissipated over several months.

For investors we would recommend holding 2 Funds and One ETF. But in a bear or volatile market the ETFS are better for trading and initiating new positions.Here are some examples we have covered recently for a diversified health care portfolio.

1. Two Core FUNDS: FSMEX for MedTech and PRHSX for expanded tools and diagnostics.
2. ETF trades for more aggressive weighting IBB and IHI.
3. Recent stock trades and picks: BDX GEHC PFE SYK
4. XBI is good for momentum trades and is weighted toward speculative small cap biotechs.
5. MedTech was a top performing sector but underperformed over the past 3 years because of fewer procedures during the pandemic.

Here is retrospective from 2013 from the 2013 Life Science bull market when the IBB was up 40%in six months!

More By This Author:

Large Cap Biopharmaceuticals Performance 2023 YTD: Mixed Results But Lilly Is A Big Winner
Big Weeks Ahead For MedTech And Life Science Stocks
Playbook Revisited As UNH Beat Could Help Sagging Healthcare Stocks