Biogen and Moderna shares show how biotech ETFs may look similar but act differently

Biogen and Moderna shares show how biotech ETFs may look similar but act differently

30 Jun    Finance News

Two exchange-traded funds with heavy exposure to Biogen Inc. BIIB, +2.76% were higher Thursday afternoon, even as shares of the pharmaceutical company dropped toward an eight-month low after a court ruling invalidated a patent on its multiple sclerosis treatment.

That was just one quirk among many in the popular biotech ETF space, a subsector that’s outperformed other categories, like Health Care Equipment and Pharmaceuticals, according to research provider CFRA.

Biogen was the biggest loser in the S&P 500 early Thursday afternoon, down 7.5%. But the iShares NASDAQ Biotechnology ETF IBB, +1.49% was 0.4% higher, despite having a 5.3% share of its portfolio invested in the stock, and the VanEck Vectors Biotech ETF BBH, +1.53%, with a 4.4% share, was up 0.3%.

Both funds carry a four-star rating from CFRA. Todd Rosenbluth, CFRA’s director of fund research, told MarketWatch that the VanEck fund was notable for having a heavier concentration in large-cap stocks and being cheaper than some competitors — 35 basis points compared with 47 for the iShares product — “but it’s being somewhat ignored.”

Fund name Expense ratio Last three months total return
iShares NASDAQ Biotechnology ETF 0.47% 30.8%
SPDR S&P Biotech ETF 0.35% 39.8%
VanEck Vectors Biotech ETF 0.35% 30.8%
Source: First Bridge Data, a CFRA company, as of June 11, 2020

“We think it’s better-positioned as we look forward,” Rosenbluth said.

CFRA also likes the iShares fund, which is the largest of all biotechnology ETFs.

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Investors aren’t necessarily chasing the best returns when it comes to biotech, Rosenbluth pointed out. State Street Global Advisors’ SPDR S&P Biotech ETF (XBI) has beaten IBB and BBH by about 10 percentage points over the past three months, the period in which investors have become aware of the potential opportunity in biotech sparked by the coronavirus crisis. Yet, investors have pulled money out of the SPDR S&P Biotech ETF, even as the iShares and Van Eck funds pick up assets.

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Fund name Assets, in billions Last three months flows (in millions)
iShares NASDAQ Biotechnology ETF $8.5 $661
SPDR S&P Biotech ETF $4.2 -$40
VanEck Vectors Biotech ETF $0.4 $61
Source: First Bridge Data, a CFRA company, as of June 11, 2020

“In general investors believe that funds representing industries move in line,” Rosenbluth said. “But these four ETFs are performing quite differently from each other because what they own is quite different.”

IBB, the iShares product, has 30% of its assets in just four positions, and BBH, the Van Eck fund, has 34% of its portfolio in four stocks, but they’re different than IBB’s, Rosenbluth noted. The difference in returns, as well as flows, reinforces the idea that investors should always know what’s inside their funds, he said.

Biogen shares account for only 1.5% of XBI’s portfolio, according to fund documents. A standout of the coronavirus treatment space, Moderna Inc. MRNA, +3.43% , is its largest single holding, at 4.2% of the portfolio.

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