PBE: Neither Lucrative, Nor Competitive

Invesco Dynamic Biotechnology & Genome Portfolio ETF (NYSEARCA:PBE) is an exchange traded fund operated by Invesco Capital Management LLC. The fund invests in stocks of companies primarily in the biotechnology sector. The ETF has invested almost 36 percent in large cap and mid cap stocks, and approximately 28 percent in small cap stocks. It benchmarks itself with Dynamic Biotech & Genome Intellidex Index, by using full replication technique. This ETF was launched on June 23, 2005 and invests primarily in the US equity market (87.55 percent of its total portfolio). The ETF has a 60 month beta of 0.96.

As of Feb 25, 2022, the fund had significant holdings (3 percent and above of its total portfolio) in companies operating in the biotechnology, and life sciences tools & services sector, only exception being the pharmaceutical firm Catalent Inc. It had invested more than 72 percent of its total holdings only in 18 stocks. At that point the market price of PBE was 59.93.

Source: Invesco | Holdings | Invesco Dynamic Biotechnology & Genome ETF

Invesco Dynamic Biotechnology & Genome Portfolio ETF is not meant for income seeking investors as it doesn’t pay any dividend at present. Neither does it have any track record of paying dividends. Incorporated on June 23, 2005, it paid quarterly dividends only for 11 quarters, and special dividend in 1 quarter out of 66 quarters it has been in operation. So, this fund is outside the purview of income seeking investors. The investors have to rely only on the price growth of this ETF.

Source: Stock Picks, Stock Market Investing

So, the investment decision will solely depend upon the expected future performance of the fund over the long run. The fund has historically performed reasonably well, and generated a return quite close to S&P500TR. PBE has recorded a growth over 41 percent over the past 5 years, and can be considered a below average (but not a very bad) return. However, the last year has caused some real doubts in terms of its investability. The fund has dipped down by 20 percent or more, whereas the S&P500TR had grown over 20 percent, thus creating a gap of 40 percent within a year. While many ETFs have recorded negative returns in the last year, it’s rare to witness such a huge gap when we compare such funds to a similar type of S&P index.

On further analysis, I found that the major holdings (3 percent or above) of PBE have mostly generated negative returns over the past one year. 13 of the 18 stocks have recorded negative growth, ranging as low as negative 60 percent recorded by Emergent BioSolutions Inc. (NYSE:EBS). Only Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), Bio-Techne Corporation (NASDAQ:TECH), Xenon Pharmaceuticals Inc. (NASDAQ:XENE), Alkermes plc (NASDAQ:ALKS), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), have generated positive returns in past one year.

Source: Invesco Dynamic Biotechnology & Genome Portfolio ETF (PBE) Stock Price Today, Quote & News

As my regular readers know, the past year has been bad for large cap (market capitalization over $12.9 billion) biotech firms, – Amgen Inc. (NASDAQ:AMGN), Moderna (NASDAQ:MRNA), Celgene Corporation (NASDAQ:CELG), Gilead Sciences, Inc. (NASDAQ:GILD), Regeneron Pharmaceuticals Inc., Horizon Therapeutics Plc (NASDAQ:HZNP), Vertex Pharmaceuticals Inc. (NASDAQ:VRTX), Illumina Inc. (NASDAQ:ILMN), Biogen Inc. (NASDAQ:BIIB), Seagen Inc. (NASDAQ:SGEN), Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Incyte Corporation (NASDAQ:INCY), Viatris Inc. (NASDAQ:VTRS), 10x Genomics, Inc. (NASDAQ:TXG), – which had otherwise been sought after by the investors interested in healthcare stocks. Out of these 15 large cap stocks, only Regeneron Pharmaceuticals Inc. had been able to record double digit growth. Vertex Pharmaceuticals Inc. grew by 8.13 percent, and the remaining had a very poor year. PBE, perhaps had made the mistake of investing too much (36.27 percent) in large cap stocks.

Source: Amgen Inc. (AMGN) Stock Price Today, Quote & News

What is even more concerning is that this ETF is expected to drop further down. It is currently trading at 8 percent over its 52 week low. And the long term moving averages are placed above the short term moving averages, implying that the stock may possibly dip below its 52 week low. However, a course correction is very much possible too, if the biotechnology sector gets some positive boost or gets into a bull run. At present, it seems very unlikely.

Source: Invesco Dynamic Biotechnology & Genome Portfolio ETF (PBE) Momentum Performance

PBE has been in operation since the 2nd quarter of 2005, and over all these years, has recorded a growth of 300 percent. The growth surely looks impressive. However, two things we need to remember are – a) calculated from inception, there is always a high possibility of recording abnormal growth rate, which may come down drastically once the company enters maturity, and b) biotechnology sector witnessed considerable growth during this period. A better indicator will be to compare the growth rate of similar ETFs over the same long time horizon. I can think of three such ETFs – First Trust NYSE Arca Biotechnology Index Fund (NYSEARCA:FBT), SPDR S&P Biotech ETF (NYSEARCA:XBI), and ProShares Ultra Nasdaq Biotechnology (NASDAQ:BIB). I find that over the same time horizon, the growth rate of both BIB and FBT is twice that of Invesco Dynamic Biotechnology & Genome Portfolio ETF. Of course, these have different investment strategies, however the difference is still concerning.

Source: Invesco Dynamic Biotechnology & Genome Portfolio ETF (PBE) Stock Price Today, Quote & News

Invesco Dynamic Biotechnology & Genome Portfolio ETF is neither suitable for income seeking investors, nor is suitable for long term investment. The fund claims to select Genomic revolution as its theme. However, it fails to focus only on such companies, and invests across the biotechnology sector. Genomic revolution has good growth prospects. But I don’t think PBE will be able to capitalize on it for its lack of focus. Though the fund is well diversified within large, mid, and small cap biotechnology firms, the combination of stocks in its portfolio failed to generate returns. This portfolio will only generate return, only when the entire biotechnology sector will be on a boom. Another very important thing to note about PBE is, investors can’t hedge their exposure by buying or selling call and put options. There is only one call option on September 16, 2022 available at a strike price of $65. In my opinion, there are much better biotechnology ETFs available in the market, such as FBT, and BIB.