Saturday, February 25, 2006

Biotech Rotation

There definitely appears to be a rotation in biotech sector. The mid-tier to smaller companies are outperforming the large cap biotechs. This is pretty obvious if you compare the various biotech exchange traded funds (ETF’s). The Merrill Lynch Holders Trust (Ticker: BBH) has underperformed the other biotech ETF’s such as the: Dynamic Biotechnology & Genome Portfolio (Ticker: PBE), Biotech SPDR (Ticker: XBI) and the Nasdaq Biotechnology iShares (Ticker: IBB). The BBH is ~ 70% concentrated in the large cap biotechs: Genentech and Amgen. The rest of the biotech exchange traded funds have a more diversified portfolio and are trading at 52 week highs. I would probably avoid the BBH for most biotech investors since this ETF is not well diversified and is expensive to purchase (offered only in 100 share lots). Out of the 4 ETF’s, the one I like the most is PBE. This fund has a little bit of everything and provides a good diversification. Here’s a 6 month chart comparing the performance of BBH to PBE.

Note: I do not own any of the biotech ETF's.


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