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Are Biotech Funds Buys Once Again?

While a number of market industries were fearful of a Trump Presidency, nowhere was the concern more prevalent than in the biotech and drug segment. After all, Trump came out several times against the pricing practices in the drug market, vowing to do something to make this a more affordable area.

And, given that many politicians on the other side of the aisle have long looked to push drug prices lower, there was plenty of reason to be optimistic that something could get done on this front. So, if you take this seemingly well-aligned political situation, and add in fears over an incredible bull run finally coming to an end in the world of biotechnology, you can see why many were worried that the best days were behind the sector.

What Has Changed?

Recent weeks has seen the total collapse of these concerns, much to the benefit of those in the biotech and health care industries. Any new bills from the Republicans on the health care front do not appear to target drug prices in any meaningful way, while Trump appears to have eased on his thinking too.

One of the main issues that had really spooked drug providers, Medicare negotiation of drug prices, now appears to be off the table, while drug reimportation also appears to be a non-starter right now too. If anything, it looks like the actual actions will be much friendlier to the industry than anyone would have imagined a year ago.

The focus now appears to be on streamlining the FDA approval process and generally speeding drugs through the pipeline. There even appears to be 'little progress' on an executive order on drug prices, so there really isn't much to worry about for drug stock and ETF investors these days, assuming these predictions prove accurate.

Bottom Line

Thanks to these recent shifts in thinking, ETFs tracking the biotech industry are once again star performers. XBI, the equal weight fund, is now up roughly 30% in the past six months, while the market cap weighted IBB is up 17.5%, and is now beating out the S&P 500 thanks to its performance over the past two weeks.

So, assuming that nothing of substance ends up happening on the drug pricing front, things are once again looking promising for this corner of the market. Consider taking a closer at any of the funds targeting this market for broad exposure, and feel free to start your search with some of the articles below for more information:

Good Investing,

Eric Dutram
ETF Strategist

 

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