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Biotechnology shares have welcomed this year in style, marking a striking reversal from last year’s dismal performance. Part of the rebound in biotech can be attributed to the “January effect”. Bargain hunting investors parked money into biotech firms which are trading at a discount to their market value as they had been offloaded in December to realize tax losses.
Biotech companies also staged a comeback following Donald Trump’s victory on expectations of relaxed regulations. Banking on these positives, investing in biotech funds seems to be prudent.
Trump Victory: A Boon for Biotech
Though Trump’s warning to the pharmaceutical industry over exorbitant drug pricing irked investors, his business tax plans should be a blessing for biotech companies. He plans to trim business tax rate to 15% from 35%. The lower tax burden is expected to boost profits for large biotech companies.
Such firms can, in the meantime, repatriate cash held overseas and only pay 10% tax on it, as per Trump’s policy. This extra cash can be further utilized to buy back stocks, boost earnings, pay dividends or invest in drug research.
Trump also announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare. Even though the act helps purchase insurance plans at a subsidized rate, it does levy taxes on the industry, which reduces profitability. A tax target is set, which will be collected from the drug industry on an annual basis. This year, the target was expected to rise to $4 billion from $3 billion. This implies that a drug maker having 15% market share of all branded drug sales will have to pay around $600 million in taxes next year. If such a fee is nullified by the abolishment of Obamacare, it will significantly boost earnings for biotech firms.
Biotech Bounces Back
Biotech stocks led Wall Street in 2017, pushing the tech-laden Nasdaq Composite to four successive record closes at a time when the broader market was struggling to keep up momentum. The iShares NASDAQ Biotechnology Index (IBB - Free Report) gained 3.4% this year. By comparison, the broader Health Care SPDR (XLV) advanced 2.4% over the same period. Lest we forget, the IBB plummeted 21.6% last year.
Other popular biotech index funds including SPDR S&P Biotech ETF (XBI - Free Report) and First Trust NYSE Arca Biotechnology Index Fund (FBT - Free Report) posted significant gains of 7.2% and 3.3%, respectively, on a year-to-date basis. Biotech behemoths are enjoying a similar bull run, with Amgen Inc. (AMGN - Free Report) and Gilead Sciences Inc. (GILD - Free Report) rallying a respective 5.9% and 0.4% this year.
4 Best Biotech Mutual Funds to Buy Now
The aforementioned bullish factors call for investing in solid biotech funds, even though the future is a little uncertain until Trump formalizes his healthcare plans. Several products getting approval should boost biotech firms, while they are also vying to capitalize on biosimilars because of its high-revenue potential.
We have, thus, selected four solid funds with major holdings of biotech companies. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Biotechnology (FBIOX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the research, development and distribution of various biotechnological products. Biotech firms including Regeneron Pharmaceuticals Inc (REGN), Alexion Pharmaceuticals, Inc. and Biogen Inc (BIIB - Free Report) are some of the fund’s major holdings.
FBIOX’s 3-year and 5-year annualized returns are 4.9% and 21.4%, respectively. Annual expense ratio of 0.73% is lower than the category average of 1.33%. FBIOX has a Zacks Mutual Fund Rank #2.
Hartford Healthcare HLS IB (HBGHX - Free Report) seeks long-term capital appreciation. The fund invests the majority of its assets in the equity securities of health care-related companies worldwide, including the U.S. Biotech companies including Bristol-Myers Squibb Co (BMY) and Celgene Corporation are some of the fund’s top holdings.
HBGHX’s 3-year and 5-year annualized returns are 9.9% and 19.4%, respectively. Annual expense ratio of 1.11% is lower than the category average of 1.33%. HBGHX has a Zacks Mutual Fund Rank #1.
Janus Global Life Sciences A (JFNAX - Free Report) invests a large portion of its assets in securities of companies that the portfolio managers believe have a life science orientation. Biotech firms including Amgen and Celgene are some of the fund’s major holdings.
JFNAX’s 3-year and 5-year annualized returns are 8.5% and 19.7%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.33%. JFNAX has a Zacks Mutual Fund Rank #2.
Schwab Health Care (SWHFX - Free Report) seeks long-term capital growth by primarily investing the majority of its assets in securities issued by companies in the health care space. Biotech companies including Amgen and Gilead Sciences are some of the fund’s top holdings.
SWHFX’s 3-year and 5-year annualized returns are 8.4% and 16.2%, respectively. Annual expense ratio of 0.80% is lower than the category average of 1.33%. SWHFX has a Zacks Mutual Fund Rank #2.
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4 Top Biotech Mutual Funds for 2017
Biotechnology shares have welcomed this year in style, marking a striking reversal from last year’s dismal performance. Part of the rebound in biotech can be attributed to the “January effect”. Bargain hunting investors parked money into biotech firms which are trading at a discount to their market value as they had been offloaded in December to realize tax losses.
Biotech companies also staged a comeback following Donald Trump’s victory on expectations of relaxed regulations. Banking on these positives, investing in biotech funds seems to be prudent.
Trump Victory: A Boon for Biotech
Though Trump’s warning to the pharmaceutical industry over exorbitant drug pricing irked investors, his business tax plans should be a blessing for biotech companies. He plans to trim business tax rate to 15% from 35%. The lower tax burden is expected to boost profits for large biotech companies.
Such firms can, in the meantime, repatriate cash held overseas and only pay 10% tax on it, as per Trump’s policy. This extra cash can be further utilized to buy back stocks, boost earnings, pay dividends or invest in drug research.
Trump also announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare. Even though the act helps purchase insurance plans at a subsidized rate, it does levy taxes on the industry, which reduces profitability. A tax target is set, which will be collected from the drug industry on an annual basis. This year, the target was expected to rise to $4 billion from $3 billion. This implies that a drug maker having 15% market share of all branded drug sales will have to pay around $600 million in taxes next year. If such a fee is nullified by the abolishment of Obamacare, it will significantly boost earnings for biotech firms.
Biotech Bounces Back
Biotech stocks led Wall Street in 2017, pushing the tech-laden Nasdaq Composite to four successive record closes at a time when the broader market was struggling to keep up momentum. The iShares NASDAQ Biotechnology Index (IBB - Free Report) gained 3.4% this year. By comparison, the broader Health Care SPDR (XLV) advanced 2.4% over the same period. Lest we forget, the IBB plummeted 21.6% last year.
Other popular biotech index funds including SPDR S&P Biotech ETF (XBI - Free Report) and First Trust NYSE Arca Biotechnology Index Fund (FBT - Free Report) posted significant gains of 7.2% and 3.3%, respectively, on a year-to-date basis. Biotech behemoths are enjoying a similar bull run, with Amgen Inc. (AMGN - Free Report) and Gilead Sciences Inc. (GILD - Free Report) rallying a respective 5.9% and 0.4% this year.
4 Best Biotech Mutual Funds to Buy Now
The aforementioned bullish factors call for investing in solid biotech funds, even though the future is a little uncertain until Trump formalizes his healthcare plans. Several products getting approval should boost biotech firms, while they are also vying to capitalize on biosimilars because of its high-revenue potential.
We have, thus, selected four solid funds with major holdings of biotech companies. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Biotechnology (FBIOX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the research, development and distribution of various biotechnological products. Biotech firms including Regeneron Pharmaceuticals Inc (REGN), Alexion Pharmaceuticals, Inc. and Biogen Inc (BIIB - Free Report) are some of the fund’s major holdings.
FBIOX’s 3-year and 5-year annualized returns are 4.9% and 21.4%, respectively. Annual expense ratio of 0.73% is lower than the category average of 1.33%. FBIOX has a Zacks Mutual Fund Rank #2.
Hartford Healthcare HLS IB (HBGHX - Free Report) seeks long-term capital appreciation. The fund invests the majority of its assets in the equity securities of health care-related companies worldwide, including the U.S. Biotech companies including Bristol-Myers Squibb Co (BMY) and Celgene Corporation are some of the fund’s top holdings.
HBGHX’s 3-year and 5-year annualized returns are 9.9% and 19.4%, respectively. Annual expense ratio of 1.11% is lower than the category average of 1.33%. HBGHX has a Zacks Mutual Fund Rank #1.
Janus Global Life Sciences A (JFNAX - Free Report) invests a large portion of its assets in securities of companies that the portfolio managers believe have a life science orientation. Biotech firms including Amgen and Celgene are some of the fund’s major holdings.
JFNAX’s 3-year and 5-year annualized returns are 8.5% and 19.7%, respectively. Annual expense ratio of 1.04% is lower than the category average of 1.33%. JFNAX has a Zacks Mutual Fund Rank #2.
Schwab Health Care (SWHFX - Free Report) seeks long-term capital growth by primarily investing the majority of its assets in securities issued by companies in the health care space. Biotech companies including Amgen and Gilead Sciences are some of the fund’s top holdings.
SWHFX’s 3-year and 5-year annualized returns are 8.4% and 16.2%, respectively. Annual expense ratio of 0.80% is lower than the category average of 1.33%. SWHFX has a Zacks Mutual Fund Rank #2.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>