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Why These Small Cap Biotech ETFs are Soaring

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The year started with very strong M&A activity in the healthcare space and the trend is expected to continue in the coming months.

Thanks to tax reform, large pharmaceutical companies are now able to access billions of dollars of cash that was parked overseas. Fears of regulatory action on drug pricing have come down. Lower tax rates are also helping these companies.

Thus, cash rich biotech and pharma giants are looking to acquire smaller, innovative biotech companies, even at hefty premiums, to build their pipelines.

Further, the FDA has approved many innovative drugs and therapies in recent months.

Investors should however remember that smaller biotech companies are quite volatile. Further, many companies that two of these ETFs hold, have products in clinical trials where chances of failure are high so these should be seen as high-risk, high-growth potential investments.

The PowerShares S&P SmallCap Health Care Portfolio (PSCH - Free Report) focuses on small cap companies in the Healthcare Equipment, Pharmaceuticals Suppliers and Providers & Services industries.

The fund charges 29 bps in fees. It has risen about 18% this year.

The Loncar Cancer Immunotherapy ETF (CNCR - Free Report) invests in companies at the forefront of immunotherapy research, including some large diversified biotech companies and many smaller pure-play companies.

The product has 30 holdings, which are equally weighted. The expense ratio is 79 basis points.

It is up about 13% this year.

The Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) invests in clinical trials stage biotechnology companies. These are typically younger, smaller companies, which do not have a drug approved, but instead focus on testing their experimental drugs in clinical trials.

The product has an expense ratio of 79 basis points.  It is up more than 12% year-to-date.

To learn more, please watch the short video above.

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