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Healthcare ETFs Win in October: Here's Why

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Healthcare, which has been the second-worst performer among the 11 major S&P 500 sectors this year, took the center stage this month with some outperformance compared to other sectors. This is especially true against the backdrop of positive news flow, including trial results and deal activities. Better-than-expected corporate earnings added to the strength.

Flurry of News Flow

Biogen (BIIB - Free Report) has spread optimism into the broad healthcare sector following its Alzheimer treatment report. The biotech company decided to move forward with the approval of aducanumab, a treatment for early Alzheimer’s diseases, after the drug met the primary endpoint of a Phase 3 Emerge study. If approved, Biogen’s drug would be the first to slow cognitive decline in Alzheimer’s patients, a milestone in long-running efforts to find a medicine that can treat the memory-robbing disease.

Hepion Pharmaceuticals (HEPA - Free Report) also led the sector higher following data that showed potential for its CRV431 as a drug candidate for liver disease treatment. A pan-cyclophilin inhibition, CRV431, is well suited to address multiple therapeutic needs that are currently either underserved, or completely absent. It reduces fibrosis and tumor development in chronic liver disease models (read: Biotech ETFs Surge on a Flurry of Positive News).

Additionally, Alexion Pharmaceuticals , which joined the ongoing M&A wave in the pharma/biotech sector, added to the strength in the space. The company agreed to acquire a clinical-stage biopharmaceutical company Achillion Pharmaceuticals for $930 million in a move to expand its pipeline of rare disease treatments. Under the terms of the deal, Alexion will pay $6.30 for each Achillion share outstanding, which is 73% higher than the Oct 15 closing price. The deal also includes potential for an additional payment for Achillion shares in the form of contingent value rights (CVRs) to be paid if certain clinical and regulatory milestones are achieved. The transaction is expected to close in the first half of 2020, subject to approvals, including from Achillion shareholders.

Solid Earnings

A solid Q3 earnings report from Biogen also drove the stock price and the sector higher.  The biotech company beat estimates for both earnings and revenues. Pharma giants Merck (MRK - Free Report) and Pfizer (PFE - Free Report) came up with an earnings beat and raised their financial forecast. Upbeat results from the duo have raised hopes about Big Pharma’s prospects even as politicians focus on health-care costs ahead of the 2020 election (read: What's in Store for Healthcare ETFs in Q3 Earnings?).

Given this, we highlight six healthcare ETFs that are leading the way higher in October.

Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report) – Up 13.3%

This fund has a novel approach to biotechnology investing with exposure to companies that are in the clinical trial stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. BBC has amassed $23.6 million in its asset base and charges 79 bps in fees per year from its investors. It trades in a light average daily volume of around 4,000 shares and holds 95 securities in its basket with each accounting for no more than 2.7% share. The product carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.

ALPS Medical Breakthroughs ETF (SBIO - Free Report) – Up 13%

This fund provides exposure to companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking S-Network Medical Breakthroughs Index. It holds 78 securities in its basket with none accounting for more than 5.1% share. The product charges 50 basis points in fees per year from investors and trades in a moderate average daily volume of about 34,000 shares. It has AUM of $171.4 million in its asset base and has a Zacks ETF Rank #3 with a High risk outlook (read: Top-Performing Biotech ETFs YTD).

SPDR S&P Pharmaceuticals ETF (XPH - Free Report) – Up 10.7%

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $184.4 million, it trades in good volume of around 69,000 shares a day and charges 35 bps in fees a year. In total, the product holds 39 securities with none accounting for more than 5.71% of assets. It has a Zacks ETF Rank #3 with a High risk outlook.

iShares U.S. Healthcare Providers ETF (IHF - Free Report) – Up 10.3%

This ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 49 securities in its basket with each making up for no more than 23.3%. The fund has amassed $790.4 million in its asset base, while volume is moderate at about 79,000 shares per day on average. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Healthcare ETFs to Buy on UnitedHealth's Solid Q3 Earnings).

SPDR S&P Biotech ETF (XBI - Free Report) – Up 10.1%

With AUM of $3.8 billion, XBI provides equal-weight exposure of around 2% across 117 biotechnology stocks by tracking the S&P Biotechnology Select Industry Index. It has 0.35% in expense ratio and trades in an average daily volume of 4.6 million shares. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Global X Genomics & Biotechnology ETF (GNOM - Free Report) – Up 10.1%

This is a new entrant in the space having accumulated $15.3 million since its inception on Apr 5. It seeks to invest in companies that potentially stand to benefit from further advances in the field of genomic science, such as companies involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics and biotechnology. The product follows the Solactive Genomics Index, charging 68 bps in annual fees. It holds 42 stocks in its basket with each accounting for less than 6.8% shares. GNOM trades in average daily volume of 4,000 shares (read: ETFs to Gain From the Booming Genomics Market).

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