The biotechnology corner of the broader health care industry has been one of the best performing U.S. sectors this year despite some temporary glitches and rough trading in between. Encouraging industry trends, increasing merger and acquisition (M&A) activities, expansion into emerging markets and ever-increasing health care spending led the sector to easily outperform the broader U.S. equity markets.
Encouraged by the high growth potential offered by this sector, issuers are launching innovative products to attract investors to this space. In fact, the new issuer – BioShares – has gone a step further to launch two new funds that look to provide exposure to two distinct groups of stocks – one focusing on earlier clinical-trial stage companies and the second looking to provide exposure to advanced products stage companies with FDA approved drugs.
The two passively managed funds – BioShares Biotechnology Clinical Trials Fund and BioShares Biotechnology Products Fund – trade under the tickers BBC and BBP, respectively. Both the new ETFs follow an equal-weighted strategy which diminishes single-stock risk and results in a well-diversified portfolio. Also, both the funds charge 85 basis points as fees (read: Buy These Top Ranked ETFs on Solid Biotech Stock Earnings).
BBC and BBP in Focus
BBC tracks the LifeSci Biotechnology Clinical Trials Index to measure the performance of biotechnology companies with a primary product offering that is in a Phase 1, Phase 2 or Phase 3 clinical trial stage of development. These biotechnology clinical-trial companies conduct clinical human trials with the ultimate aim of gaining FDA approval.
With this focus, the fund presently holds a basket of 68 stocks focusing mainly on small caps. Auspex Pharmaceuticals Inc. (ASPX) occupies the top spot with 2.85% allocation, followed by 1.65% to Retrophin Inc. (RTRX) and 1.59% to Sage Therapeutics Inc.(SAGE).
BBP, on the other hand, tracks the LifeSci Biotechnology Products Index to measure the performance of biotechnology companies with a primary product offering that has received U.S. Food and Drug Administration approval (read: The Complete Guide to Biotech ETFs).
The companies within the index have developed at least one drug that has been approved by the FDA and has gone into commercial production. Moreover, these companies primarily focus on sales and marketing to raise awareness of their new product launches.
BBP currently holds a basket of 36 stocks with NPS Pharmaceuticals Inc (NPSP), Immunogen Inc. (IMGN) and Halozyme Therapeutics Inc. (HALO) being the top three holdings, each with a little over 3% exposure.
Companies forming part of BBP and BBC's index should have a minimum of $250 million in market capitalization and a minimum average daily volume of $1 million.
