Even With Recent Declines, Investors Still Love Biotech ETFs

Biotechnology exchange traded funds still dominate the list of this year's top-performing non-leveraged sector ETFs. In fact, each of the top six sector ETFs in terms of year-to-date gains are biotech funds, but the group's leadership has waned to end July.

Thursday is another day in which investors can spot bearish biotech ETFs, such as the Direxion Daily S&P Biotech Bear 3X Shares LABD, among the day's top percentage gainers while the biggest biotech funds flail into month end. Since July 20, the iShares Nasdaq Biotechnology ETF IBB and the First Trust NYSE Arca Biotechnology Index Fund FBT, the two largest biotech ETFs by assets, have posted an average loss of close to five percent.

The equal-weight SPDR S&P Biotech ETF XBI, the third-largest biotech ETF, is off nearly seven percent over that period. The recent bout of biotech weakness, however minor it may be, is not chasing investors from these previously high-flying ETFs.

“This week we have seen decent sized inflows in the largest Biotech Equity based ETP in the U.S. listed landscape, IBB (iShares NASDAQ Biotechnology, Expense Ratio 0.48%), to the tune of about $400 million,” said Street One Financial Vice President Paul Weisbruch in a note out Thursday. “Net year to date the fund has reeled in north of $1.2 billion now, pushing the fund near the $10 billion mark in terms of total assets under management ($9.5 billion in total is in this fund).” 

Third-quarter inflows to the aforementioned trio of biotech ETFs have been impressive as well with IBB seeing inflows of nearly $769 million. XBI and FBT have added almost $217 million and $176 million, respectively.

Bullishness surrounding Gilead Sciences GILD, which reported earnings earlier this week, could be one of the catalysts driving new cash to IBB and FBT. Earlier this week, Barclays maintained an overweight rating on Gilead while boosting its price target to $130 from $125. Morgan Stanley has $125 price target on the stock. 

Both targets imply a decent amount of upside from current levels, which could potentially mean good news for IBB and FBT as those ETFs have Gilead weights of 7.9 percent and 3.4 percent. Another potential catalyst is imminently looming for biotech ETFs as well.

After the close of U.S. markets today, Amgen AMGN is expected to post its quarterly earnings at $2.43 per share on revenue of $5.32 billion. 

Amgen is FBT's second-largest holding at a weight of 3.7 percent while the stock commands 8.4 percent of IBB, also making it that ETF's second-largest component. If analyst forecasts prove accurate, Amgen could provide a boost to biotech ETFs going forward. On Thursday, Piper Jaffray reiterated a $192 price target on the stock while Nomura showed a $182 price target. Amgen trades around $172.40 at this writing.