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This Tiny Early-Stage Biotech ETF Was Q1’s Best Performing Fund

From Zacks: After being stressed by the twin attacks of higher drug pricing and increased regulatory scrutiny, the biotech sector has made a strong comeback in the first quarter of 2017.

In fact, BioShares Biotechnology Clinical Trials ETF (BBCFree Report) tops the list of the best performing ETFs of the quarter, with impressive returns of about 27.4%. BBC carries a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

The surge in the fund was largely driven by cheap valuation, robust earnings results and a slew of positive actions taken by the President. In particular, Trump promised to reduce federal regulations by 75–80% and streamline the Food & Drug Administration (FDA) approval process. This would make it easier for biotech companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy are also supporting the rally (read: Top ETF Stories of Q1 from Wall Street).

Apart from these, encouraging industry trends including the possibility of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, the growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending are fueling growth in the sector.

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 with 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 $24.4 million in its asset base. It charges 85 bps in fees per year from investors and trades in light average daily volume of around 14,000 shares.

Holding 70 stocks in its basket, it is widely spread out across various components with none holding more than 3.34% share. Though almost all the stocks in the fund’s portfolio delivered strong returns, a few were the real stars that more than doubled their size (read: Hit ETFs & Stocks from the Top Sector of February).

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

Esperion Therapeutics Inc. (ESPRFree Report) : The stock has surged about 185% so far this year and carries a Zacks Rank #3 with solid Industry rank in the top 39%. Most of the gains came on hopes of the Food and Drug Administration’s (FDA) approval to the cholesterol-lowering medicine bempadoic acid. However, Esperion saw its earnings estimates deteriorating from a loss of $3.46 to a loss of $6.27 for this year over the past 90 days. It also has an unfavorable VGM Style Score of F. ESPR occupies the top spot in the fund’s basket with 3.3% of the total assets (see: all the Health care ETFs here).

Global Blood Therapeutics Inc. (GBTFree Report) : This stock takes the second position in the fund’s basket with 2.8% allocation. It has also delivered incredible returns of 169% in the first quarter on rumors of the takeover of a big pharma name like Novo Nordisk (NVO). The stock saw its earnings estimates moving from a loss of $2.89 to a loss of $2.83 for this year over last the 90 days. Further, it belong to a solid Industry with a Zacks Rank in the top 43%. The stock has a Zacks Rank #3 with a VGM Style Score of F.

TG Therapeutics Inc. (TGTXFree Report) : It currently has a Zacks Rank #3 with a VGM Style Score of F. The stock soared nearly 150% in the first quarter with most upside coming after positive study results from its phase 3 clinical trial of treatment for high-risk leukemia patients. However, TG Therapeutics saw negative earnings estimate revision of a nickel for the current year over the past 30 days and has an ugly Zacks Industry rank in the bottom 32%. The stock is the third firm and accounts for 2.7% share in BBC (read: Trump Tweet on Drug Pricing Hits Biotech and Pharma ETFs).

Cara Therapeutics Inc. (CARAFree Report) : The stock has been climbing since the start of the year and has gained about 105.5% this quarter on the pending trial results of its lead drug candidate. It hit a new one-year high of $20.90 in the last trading session after the company announced positive results from part A of a phase 2/3 trial for chronic kidney disease-associated pruritus. Cara Therapeutics has a solid Zacks Industry rank in the top 43%. However, it has a Zacks Rank #4 (Sell) with a VGM Style Score of F. The stock occupies the fourth position in the fund’s portfolio, making up for 2.5% share.

NewLink Genetics Corporation (NLNKFree Report) : This stock takes the seventh spot in the fund’s basket with 2.2% of assets. It has doubled this quarter but saw negative earnings estimate revision of $1.21 for this year over the past 90 days. NewLink Genetics currently has a Zacks Rank #3 with a VGM Style Score of F and solid Zacks Industry rank in the top 43%.

The BioShares Biotechnology Clinical Trials Fund (NASDAQ:BBC) was unchanged in premarket trading Friday. Year-to-date, BBC has gained 25.75%, versus a 5.59% rise in the benchmark S&P 500 index during the same period.

BBC currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #23 of 36 ETFs in the Health & Biotech ETFs category.

This article is brought to you courtesy of Zacks Research.

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