Biotech Sector Leads Market Despite Slowing Trump Pro-Growth Agenda
Biotech Themes and Clinical News Still Motivate Investors
Drug Price Growth Expected to Slow in Coming Years
Despite recent weakness over the past month the biotech sector has continued to outperform the market. This may surprise you because of all the focus since the election on the so called “Trump Trade” which includes financials, industrials and materials, thought to be beneficiaries of pro-growth economic policies -less regulatory burden, infrastructure spending and tax cuts. Technology stocks have pulled back 2% since March 30 but the Power Shares QQQ, including both large cap tech as well as some biotech is still up 10% YTD. On the other hand, healthcare stocks including biotech have been under scrutiny mainly because of higher drug prices and “repeal and replace Obamacare” legislation. Market forces are already reducing drug prices so consider the earnings impact in coming years.
The 2017 performance results are surprising as industrials are up only 2.6% YTD and financials are down 1.6% YTD. Healthcare is up 7.3% in second place so if healthcare can remain steady biotechs should follow. Biotech stocks lead or match performance of the strong technology sector (XLK) up 11% YTD:
FBIOX up 13.36%, FBT up 14.5%, IBB up 9.5%, XBI up 15.68%
It is interesting to note that the Fidelity Select Biotechnology Fund (FBIOX) is outperforming the widely traded IBB by five percentage points in 2017 and seven points over one year. However over the past 5 years the IBB is still the leader because of better performance in 2016. The XBI is the five year leader up 175%. Fidelity was holding many of the big winners listed below like VRTX, INCY and SGEN.
Some well known large and mid cap stocks account for the outperformance of biotech over the past six months:
Exelixis (EXEL) up 78.6%
Vertex Pharmaceuticals (VRTX) up 41.3%
