From an investment standpoint, two of the hottest performing sectors, over the past two years, have been Technology and Health Care. Phenomenon like the FANG (Facebook-Amazon-Netflix-Google), and tailwinds from the Affordable Care Act (aka. Obama Care) respectively, propelled these two sectors over the last two years.
A look at 2-year price movement charts of the two representative indices reveals exactly what we mean. Both sectors have delivered double-digit gains (and in NDXTs case, nearing triple-digit returns!) to their investors. Clearly, all this talk about trade wars and tariffs, over the past several months, doesn’t seem to have dampened the spirit of either of these two sectors.
So, how about combining the momentum from both these individual sectors, and putting your money into a sector that offers investors the best of both worlds: Biotechnology?
Before we get to the WHY – lets delve into the WHAT for a moment.
When we suggested combining the qualities of two sectors to form one “super” sector – that’s exactly what we meant. That’s because biotechnology is a comingling of biology and technology to unleash the power of biomolecular and cellular processes to create powerful health care products and technologies.
So, in that vein, biotech makes perfect investment sense today because:
1) With so many developments in both fields today, biology and technology, now is as good a time to invest in the future outcome of those developments. According to a recent report by consultant firm EY, there are over 700 biotech firms in the US and Europe, with a market cap of $862B, and employing more than 203,210 employees. The sector is alive and thriving, and it makes sense to invest in it now!
2) But what does the future hold for investors interested in investing in biotech today? Well, in 2016 the size of the biotech market was estimated to be at roughly $369.62B US. Analysts estimate that within the next two years (by 2020), this segment is set to grow to $604.40B – that’s a 63.5% increase! Any market that holds such an explosive growth potential in the near future, is worth investing in today!
3) The world is aging fast, and it is too costly to treat an aging demography using traditional medicines. The US is expected to spend nearly 19.7% of its GDP on health care by 2026. Unless health-care costs are dramatically reduced, countries (including the US) will be hard pressed to sustain the costs. The most promising way to deliver affordable health care is through biotech. So, because biotech is an imperative – not a luxury – it bodes well to get into that space today!
Now that we’ve established that biotech is indeed a sector worth investing in, the next question is: HOW should investors play it?
XBiotech Inc. (NASDAQ: XBIT)
If you wish to invest directly in a company that’s on the frontlines of biotech, then you might want to consider this name.
XBIT is a global integrated biosciences company that is dedicated to developing proprietary technology to fight inflammatory diseases, create new cancer treatments and treat infectious diseases. The company uses 100% human antibodies, extracted from human subjects that have natural immunity against specific diseases, in its treatments. Unlike some of its peers therefore, the company uses the body’s own immune system to combat diseases. This not only increases the efficacy of the drugs, but it also adds to human safety and tolerance of the treatments.
Year-To-date, XBIT has delivered a neat 10.55% return (intra-day at the time of writing). However, as is indicated in the chart above, there has been a lot of volatility in the name – as should be expected in news-driven stocks like biotech.
SPDR S&P Biotech ETF (NYSEARCA: XBI)
If you are a bit more cautious right now, about adding biotech exposure to your portfolio through an individual name, then perhaps the XBI ETF might be worth considering. This basket of biotech names includes component holdings like Exact Sciences Corporation (NASDAQ: EXAS) – (+103% 1year return), Agios Pharmaceuticals, Inc. (NASDAQ: AGIO) – (+86%) and Immunomedics, Inc. (NASDAQ: IMMU) – (+213%), amongst many others.
The managers of this ETF closely seek to mirror the performance of the S&P® Biotechnology Select Industry™ Index, which in itself is based on the biotechnology sub-component of the S&P Total Market Index (“S&P TMI”).
On a YTD-basis, at the time of writing, XBI has delivered a solid 13% plus return on investment. Considering that this ETF only charges a Net Expense Ratio of 0.35%, it could make a great addition to any portfolio looking for a cheap way to add biotech exposure.
While biotech holds great promise, there have been spectacular disappointments in the sector too. Names like Dermira, Inc. (NASDAQ: DERM) and Novan, Inc. (NASDAQ: NOVN) have disappointed their investors dramatically as a result of their drugs failing key regulatory tests. On the other hand, biotech companies like Xencor Inc (NASDAQ: XNCR) and Foamix Pharmaceuticals Ltd. (NASDAQ: FOMX) have certainly made their investors happy over the past year.
The key to making it in biotech investments is: Education and Diligence. Before you invest, learn everything you can about your potential opportunity. And once you’ve put money into a pick, watch it carefully, including all the headlines and news that come from them. Finally, be prepared and brace yourself for some volatility.
Author does not have investment in stock discussed in this article. Sign-up for our bi-weekly newsletter so you don’t miss any hot investment opportunities. Also don’t forget to get our recently published Best Blockchain Stock To Invest In Right Now report absolutely free.
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