While the rest of the markets retreated on a round of risk-off selling in response to President Donald Trump’s threats to raise Chinese tariffs, biotechnology stocks and sector-related exchange traded funds brushed off the concerns and strengthened on Monday.
Among the lone areas of strength in the U.S. markets, biotech ETFs stood out. On Monday, the ARK Genomic Revolution Multi-Sector Fund (NYSEArca: ARKG) gained 1.7% and ALPS Medical Breakthroughs ETF (NYSEArca: SBIO) rose 1.6%. Meanwhile, the more widely observed iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB) increased 0.9%.
In comparison, the broader S&P Health Care Select Sector Index was 0.5% higher and the S&P 500 Index was down 0.5% on Monday.
Small-cap or smaller specialty biotech companies led the charge on Monday, which is reflected by ARKG and SBIO’s outperformance as the two ETFs target more smaller names. Among the standouts, Intellia Therapeutics Inc. (NasdaqGS: NTLA) surged 10.6%. NTLA makes up 7.4% of ARKG’s underlying portfolio.
The ARK Genomic Revolution Multi-Sector Fund provides exposure to CRISPR, gene editing, therapeutics, agricultural biology and health care innovation. The fund tries to help investors take on a thematic multi-capitalization exposure to innovative elements that cover advancements in gene therapy bio-informatics, bio-inspired computing, molecular medicine, and pharmaceutical innovations. These advancements can also translate over to growth potential, potentially providing investors with long-term alpha with low correlation relative to traditional growth strategies.
The ALPS Medical Breakthroughs ETF focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III trials. The component holdings have one or more drugs in either Phase II or Phase III U.S. Food and Drug Administration clinical trials. In a Phase II trial, the drug is administered to a group of 100-300 people to see if it is effective and to evaluate its safety. In a Phase III trial, the drug is given to a larger group, between 500-3,000 people, to confirm its effectiveness, monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatment to be used safely.
Biotech ETFs that focus on smaller companies have been enjoying a nice boost this year as larger companies begin to sift through smaller researchers to build up their portfolios.
The iShares Nasdaq Biotechnology ETF is the largest biotech-related ETF by assets under management. The ETF provides exposure to the largest U.S. biotechnology and pharmaceutical companies, including names like Celgene 8.6%, Gilead Sciences 8.6% and Amgen 7.8%, among others.
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