After a huge sell-off at the start of the year, the biotech sector has made a strong comeback with BioShares Biotechnology Clinical Trials Fund (BBC - ETF report) topping the list of the best performing ETFs of 3Q16. The fund delivered impressive returns of about 29.6% in the quarter and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
This is especially true given that a string of robust earnings results, hopes of increased M&A activity and accelerating pace of innovation brought confidence back into the sector. In addition, the stock market rally has compelled investors to hunt for beaten down growth stocks. However, increased regulatory scrutiny over high drug prices and political uncertainty surrounding healthcare reform in the wake of November elections continued to weigh on the sector performance (read: Clinton Apparently Won First Debate: ETFs in Focus).
Let’s take a closer look at the fundamentals of BBC and its performance.
BBC in Focus
This fund has a novel approach to biotechnology investing providing exposure to companies that are in the clinical trials stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC is a small cap centric fund, having amassed $23.3 million in its asset base since its debut in late December 2014. The product charges 85 bps in fees per year from investors and trades in light average daily volume of around 13,000 shares.
Holding 77 stocks in its basket, it is widely spread out across various components with none holding more than 3.3% share. Though almost all the stocks in the fund’s portfolio have delivered impressive returns, a few were the real stars that gained more than 50% or even more than doubled their size (read: Biotech ETFs in Focus on Tobira Therapeutics' Massive Gain).
Below, we have highlighted those five best performing stocks in the ETF with their respective positions in the fund’s basket:
Best Performing Stocks of BBC
Sarepta Therapeutics Inc. (SRPT - Analyst Report) : The stock has been flying higher, surging about 198% over the past three months. It touched a new 52-week high of $63.73 on September 28. The outstanding performance by this drug maker was mainly supported by the Food and Drug Administration (FDA) approval of the Duchenne muscular dystrophy drug, eteplirsen (read: Sarepta Stock Nearly Doubles on FDA Approval for DMD Drug).
The stock has seen earnings estimates deteriorating from a loss of $5.27 to a loss of $5.14 for this year over the past 30 days. Additionally, the projected earnings growth rate of 1.20% for 2016 is much higher than the industry average growth of 0.57%. Sarepta, having a Zacks Rank #3 (Hold) and a VGM Style Score of ‘F’, occupies the top spot in the fund’s basket with 3.3% of the total assets.
Clovis Oncology Inc. (CLVS - Analyst Report) : This stock takes the second position in the fund’s basket with 2.9% allocation. It has also delivered incredible returns of 142% in the past three months driven by the hype surrounding its potential takeover target and the FDA acceptance of the company’s NDA for rucaparib, an ovarian-cancer drug, for accelerated approval.
Though no earnings estimate revisions have been seen for the current year over the past 30 days, the stock has a Zacks Rank of #2 (Buy) with an unfavorable VGM Style Score of ‘F’.
Puma Biotechnology Inc. (PBYI - Analyst Report) : It currently has a Zacks Rank #2 with a VGM Style Score of ‘D’. The stock gained momentum with the start of the quarter, soaring more than 120%. The massive upside came following the FDA acceptance of a new application for the new drug, neratinib, for the treatment of breast cancer (read: Puma Biotechnology Shares March Higher, Can It Continue?).
No earnings estimate revision was made for the current year over the past 30 days. Puma Biotechnology id the third firm and accounts for 2.3% share in BBC.
Vitae Pharmaceuticals Inc. (VTAE - Snapshot Report) : This stock takes the fourth spot in the fund’s basket with 2.2% of assets. The company has seen no earnings estimate revision over the past 30 days for the current year but the Zacks Consensus Estimate of a loss of $1.66 represents a substantial year-over-year increase of 18.5% compared to the negative industry average.
The stock gained about 98% this quarter, hitting a new one-year high of $20.97 on September 14. Vitae Pharmaceuticals has a Zacks Rank #3 with a VGM Style Score of ‘F’.
Array BioPharma Inc. (ARRY - Snapshot Report) : The stock climbed nearly 70% this quarter to reach a new 52-time high of $7.27 on September 27. The impressive performance came on the back of a positive late-stage trial result for melanoma skin cancer treatment (see: all the Health care ETFs here).
The company has seen negative earnings estimate revisions for fiscal 2016 over the last 30 days. Notably, the Zacks Consensus Estimate is currently pegged at a loss of $0.84, wider than a loss of $0.79 over the last 30 days. ARRY has a Zacks Rank #3 with a VGM Style Score of ‘F’. The stock occupies the fifth position in the fund’s portfolio, making up for 2.1% share.
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