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Pharma & Biotech ETFs at One-Month High: Here's Why

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Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) topped the list of the best-performing U.S. equity ETFs in June, gaining about 10%. The rally was driven by traders’ “short squeeze” and investors’ bargain hunting. Not only BBC, several pharma and biotech ETFs are trading at one-month high amid a steep market slump. Let’s find out why.

Short Squeeze

Traders on forums such as Reddit's WallStreetBets acted to bid up shares of heavily-shorted stocks, triggering a phenomenon known as a "short squeeze", which pushes up the stock prices higher. Notably, short squeeze is a term used by market participants to refer to a phenomenon where short-sellers in a stock, who placed their bets on its fall, rush to hedge their positions or buy the stock in the event of an adverse price movement to cover their losses. This leads to a sharp rise in demand for the share and a huge rally in share prices (read: Biotech ETF Tops in June: 5 Stocks That Outperform).

Opportunities Created by COVID-19

The COVID-19 pandemic has turned out to be a growth opportunity for the companies in the biotech sector to develop innovative treatments and vaccines for COVID-19. The successful development of treatments in such a short period has resulted in massive incremental revenues for these companies, which have developed vaccines, antibody treatments and antivirals for this disease. The emergence of new variants of the virus is keeping the momentum going.

Safe Sector

As the market has been slumping this year on recessionary fears (thanks to a sky-high inflation and a hawkish Fed), investors turned to a safe sector. Since healthcare as a whole is non-cyclical in nature and always remains in demand irrespective of the economic condition, the sector has performed well in recent times.

Decline in Long-Term U.S. Treasury Yields

U.S. benchmark treasury yields trended lower last month. It started the June with 2.94% yield while it ended at 2.98%. It hit a peak of 3.49% at mid-June. As of Jul 6, 2022, U.S. benchmark treasury yield was 2.93%. Since biotech stocks are high-growth in nature, these perform better in a subdued interest rate environment.


Sector Consolidation

Consolidation has always taken center stage in the biotech industry. While the scale and pace of M&A activity slowed down last year due to the pandemic, the pace has picked up of late as biotech bigwigs like Gilead, Bristol Myers, among others, are evidently on the lookout to bolster their portfolios. While oncology and immuno-oncology are the key focus areas, treatments for rare diseases and gene-editing companies also promise potential, making them lucrative investment areas.

ETFs in Focus

Against this backdrop, below we highlight a few pharma and biotech ETFs that are trading at a one-month high.

BioShares Biotech Clinical Trial (BBC - Free Report) – Up 17.2% Past Month

Loncar Cancer Immunotherapy ETF (CNCR - Free Report) – Up 14%

S&P Pharmaceuticals SPDR (XPH - Free Report) – Up 3.3%

Invesco Nasdaq Biotechnology ETF (IBBQ - Free Report) – Up 5.6%

Strategic Crispr & Gene Editing Technology ETF (XDNA) – Up 13.8%

US Innovative Healthcare iShares Evolved ETF – Up 4%

GlobalX Genomics & Biotechnology ETF (GNOM - Free Report) – Up 11.7%

ETFMG Treatments Testing & Adv ETF (GERM - Free Report) – Up 8.2%

Dynamic Pharmaceuticals Invesco ETF (PJP - Free Report) – Up 2.4%

Dynamic Biotechnology & Genome Invesco ETF (PBE - Free Report) – Up 5.6%