With the domestic economy recovering slowly but steadily and interest rates expected to remain low in near future, the overall backdrop for US stocks remains positive. But as the bull market approaches its seven year anniversary, the easy money in stocks has already been made. Global growth worries, lackluster earnings, valuation concerns, China stock market turmoil and uncertainty relating to the Fed will also continue to weigh on the market.
It is thus no surprise that the broad market continues to trade sideways with lackluster returns year-to-date. But some stocks have delivered outsized returns this year. Similarly some innovative ETFs following specialized strategies or tracking high growth areas have been rewarding their investors with stellar returns in 2015. Considering their outperformance potential, these could be held as satellite holdings in the portfolio, in order to spice up overall returns.
A Shining Biotech Star: ALPS Medical Breakthroughs ETF (SBIO – ETF report)
Biotechs have been leading the bull market for the last 6-7 years. After this massive surge, valuations look lofty now by many measures, but there are still many reasons to be positive on the sector. Surging M&A activity, positive drug trial results and steady growth in the number of drugs being approved by the FDA have further boosted investor optimism and will continue to support these stocks. (Read: Top Ranked Financial ETFs in Focus on Improved Earnings)
This fund tracks the Poliwogg Medical Breakthroughs Index. It invests mainly in mid and small cap stocks with market cap between $200 million and $5 billion. The index screens the U.S. listed biotech and pharma companies with one or more drugs in Phase II or Phase III FDA clinical trials. The index also screens for liquidity (average daily trading volume more than $1 million) and sustainability (cash for at least 2 years at their normal burn rate).
Per ALPS, due to “patent cliff”, many blockbuster drugs from the 1990s and 2000s have been losing patent protection and large drug companies are struggling to replenish their pipelines. Further, due to time-consuming procedure and an alarming rate of failure for drug development, the bigger firms usually rely on new therapies processed by smaller firms that spend a lot more on R&D compared to their larger peers.
This fund holds 75 stocks with Anacor Pharma, Receptions and Horizon Pharma being the top 3 holdings. The product charges 50 bps in fees. Company specific risk is limited due to modified market cap weighting with maximum 4.5% of assets. The product launched in December last year and has gathered about $200 million in assets so far.
SBIO has soared almost 52% this year. (Read: Follow Goldman with These European ETFs)
Foil Hackers with PureFunds Cyber security ETF (HACK)
Our world is becoming increasingly digital—bringing us many exciting opportunities and possibilities–but also creating enormous challenges. Abundance of digital information and sophisticated tools available to process and share this information make it very hard to ensure data security in this interconnected world. That is why cybersecurity threats and cyberattacks are on the rise.
