This week’s ETF Talk focuses on an exchange-traded fund (ETF) that sets itself apart from the pack as a biotech offering that’s just a bit different from anything else on the market. Biotech is a very hot and interesting sector, and it has become known in recent years for its potential for powerful growth. This fund, BioShares Biotechnology Products ETF (Nasdaq:BBP), features more established biotech companies that have much of their early-stage clinical trial failure risk behind them.
BBP buys shares of companies that already have successfully completed multiple human clinical trials and have received Food and Drug Administration (FDA) approval to sell and market a drug. The management teams of companies included in BBP therefore devote more of their energies toward educating patients, physicians and insurance providers to spur sales and profit growth.
BBP owns shares in “products stage” companies that are not vulnerable to the risk that clinical trial failures could doom their business prospects, unlike some start-up biotech companies that might need successful clinical trials to survive. In addition, BBP targets companies with products aimed at saving lives. Those companies already have FDA-approved products on the market or will be cleared to launch once infrastructure for production is in place. The fund seeks investment results that correspond, before fees and expenses, to the price and yield performance of the LifeSci Biotechnology Products Index.
The principals of BBP are founders of and/or are affiliated with LifeSci Advisors, a unique investor relations consultancy. Andrew McDonald, Ph.D., is a co-founder of LifeSci Index Partners and co-portfolio manager of BioShares funds who began his career as a medicinal chemist at Pfizer (NYSE:PFE). Paul Yook, a former health care hedge fund portfolio manager, also is a co-founder of LifeSci Index Partners and is the portfolio manager of BioShares funds.
Despite huge long-term promise of biotech, BBP has fallen with the rest of the sector and is down 26% during the last 12 months. Much of the drop occurred in January when the overall stock market pulled back. Not only has biotech taken a serious beating recently, so have companies whose shares are held by BBP. The fund has an expense ratio of 0.85%, which is on the expensive side for an ETF, but it does offer a 1.65% current yield. Net assets are just $17 million, but it is less than two years old and has a fairly narrow niche. Its current smallish size puts it beneath my recommended threshold for investment. However, this ETF’s strategy is one that is worth bringing to your attention. The more knowledge you have as an investor, the better you can make informed decisions.
Top holdings for BBP include Theravance Biopharma, 3.41%; Amgen, 3.38%; Biogen, 3.34%; Enanta Pharmaceuticals, 3.31%; and Acorda Theraputics, 3.30%. The total weighting for its top 10 holdings amounts to 32.87%.
Although the fund’s current price is quite depressed, when global stock markets recover, this fund could be a major beneficiary. If any of this piques your interest, I encourage you to learn more about BioShares Biotechnology Products ETF (BBP). Watch for my column next week when I feature a different BioShares fund, BioShares Biotechnology Clinical Trials Fund (BBC).
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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.