Biotech Fund Invests in Promising Start-ups

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

This week’s ETF Talk highlights a biotech exchange-traded fund (ETF) that complements the one I described in my previous column. As I wrote then, biotech offers huge long-term growth potential. BioShares Biotechnology Clinical Trials Fund (BBC) is designed to invest in companies that are pursuing clinical trials to develop life-saving new products and treatments. BBC lets investors tap into that promise but it also requires accepting additional risk and volatility along the way.

Unlike its sister fund, the BioShares Biotechnology Products ETF (BBP), which invests in the shares of “products stage” companies that already have some approved products either on the market or are cleared to launch once infrastructure for production is in place, BBC is buying shares in companies that are pursuing clinical trials with the intent of developing such products. BBP is backing biotech companies that are somewhat established while BBC is targeting high-potential, high-risk start-ups.

One of the big advantages of investing in BBC rather than individual biotech start-ups is that the nature of an ETF is to back a number of companies in hopes that any big winners that emerge from the pack are not missed and can lead the fund to significant profitability. An ETF also allows an investor to hedge the risk that many of the clinical trials will fail, while the successful trials of other biotech companies included in the fund can lift its overall performance.

The start-up companies are engaged in clinical trials to develop antivirals, antibiotics, cancer-fighting medicines, gene therapies, cell-based therapies and enzyme replacement therapies. Successful companies manage their balance sheets through financings and partnerships to develop their potential blockbuster drugs. BBC seeks investment results that correspond, before fees and expenses, to the price and yield performance of the LifeSci Biotechnology Clinical Trials Index.

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The principals of BioShares are founders of and/or are affiliated with LifeSci Advisors, an 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 (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.

BBC’s five biggest holdings and the weightings of each within its overall portfolio are Inovio Pharmaceuticals, 1.83%; Ziopharm Oncology Inc., 1.77%; Aimmune Therapeutics Inc., 1.58%; Paratek Pharmaceuticals Inc., 1.55%; and Adaptimmune Therapeutics-ADR, 1.53%. As those weightings indicate, no one stock accounts for even 2% of the fund’s total holdings.

As the following chart shows, BBC has taken a beating in the market during the past 12 months, particularly since the start of the year. Not only is the fund down 44% in the last year, it has fallen 40.5% thus far in 2016. But it has begun to recover in recent days.

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Similar to BBP, BBC has an expense ratio of 0.85%, which is on the expensive side for an ETF. Net assets are just $15.5 million, though this is no surprise since it only was founded on December 16, 2014. This does put 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.

View the current price, volume, performance and top 10 holdings of BBC at ETFU.com.

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Though its current price has fallen substantially in the past year, it could do quite well when global stock markets recover. If his fund interests you, I encourage you to learn more about BioShares Biotechnology Clinical Trials Fund (BBC).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter.

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.

previous article

Emerging Markets ETFs and Commodity ETFs are poised to rally for big gains. ETF investing expert Doug Fabian explains how investors could take advantage.

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