The biotechnology industry has surpassed the S&P 500 so far this year, turning up as one of the best performers this year. The better-than-average performance of the industry has been mainly driven by mergers and acquisitions, initial public offerings (IPOs), introduction of biosimilars, collaborative operations, rising use of AI and new job opportunities.
In fact, the major biotech ETFs and indexes have performed impressively so far this year. The SPDR S&P Biotech ETF (NYSE:XBI) has gained 26.7% year to date, while the ProShares Ultra Nasdaq Biotechnology (BIB) added 38.4%.
Biotechnology mutual funds are good investment options regardless of how the financial markets are performing. Investors who wish to make the best of the biotechnology industry’s gains could consider investing in mutual funds focused on biotechnology companies.
M&As, IPOs & Tie-Ups Keep Biotech in the Limelight
The biotechnology sector has been in news since the beginning of 2019. A significant number of companies participated in mergers and acquisitions. In January alone, two major deals were signed. First, Bristol-Myers Squibb Company (NYSE:BMY) announced that it will acquire Celgene Corporation (NASDAQ:CELG). The acquisition was finally completed in November 2019.
Takeda Pharmaceutical Company Limited completed the acquisition of Shire in January. In the very next month, Eli Lilly and Company (NYSE:LLY) acquired Loxo Oncology. This acquisition extended the scope of the former’s oncology portfolio into precision medicines via the addition of an array of highly selective potential medicines for patients that suffer from genomically defined cancers. There were many other such deals announced during the period.
The number of IPOs has also been vast in 2019. In fact, the numbers have been rising steadily over the last couple of years.
This is because biotechnology firms call for much financing, particularly when they advance in their research. Going public not only makes it easier to take care of the financing they need but also gives them more visibility in the industry. This may open up opportunities for acquisitions and collaborations later on, thus helping the company.
The industry was also in news because of a number of collaborations this year. In October, Amgen (NASDAQ:AMGN) announced a strategic collaboration with BeiGene to help the former expand its oncology presence in China.
Earlier this year, Biogen (NASDAQ:BIIB) and C4 Therapeutics announced a collaboration to evaluate the use of the latter’s novel protein degradation platform. The companies plan to discover and develop treatments for patients with neurological conditions.
The Future of Biotechnology Shines
According to Global Market Insights, the size of the biotechnology market was valued at $399.4 billion in 2017. The market is expected to see a compound annual growth rate of 9.9% from 2018 to 2024.
Apart from the factors mentioned above, rise in chronic ailments such as cancer, asthma, arthritis and diabetes, healthcare’s expanding reach in remote areas, and evolving research and development are instrumental in boosting the biotechnology sector.
Our Choices
We have, therefore, selected three mutual funds that invest in biotechnology companies. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date returns. In addition, the minimum initial investment is within $5,000.
We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Biotechnology Portfolio FBIOX fund aims for capital growth. The fund invests majority of its assets insecurities of companies primarily engaged in the research, development, manufacture and distribution of biotechnological products and services, etc. These companies also gain considerably from scientific and technological advances in biotechnology.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FBIOX carries a Zacks Rank #1 and has an annual expense ratio of 0.72%, which is below the category average of 1.27%. It has returned 15.4% on a year-to-date basis. FBIOX has no minimum initial investment.
T. Rowe Price Health Sciences Fund PRHSX aims for capital appreciation. The fund invests majority of its assets in common stocks of companies that pursue research, development, production or distribution of products or services related to health care, medicine or the life sciences. PRHSX is a non-diversified fund.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PRHSX carries a Zacks Rank #1 and has an annual expense ratio of 0.77%, which is below the category average of 1.26%. It has returned 15.6% on a year-to-date basis. PRHSX has a minimum initial investment of $2500.
Janus Henderson Global Life Sciences Fund Class A JFNAX aims for long-term capital growth. The fund invests majority of its assets in securities of companies that the portfolio managers consider to have a life science orientation.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
JFNAX carries a Zacks Rank #2 and has an annual expense ratio of 0.99%, which is below the category average of 1.27%. It has returned 14.3% on a year-to-date basis. JFNAX has a minimum initial investment of $2500.
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