The Index Trying to find a Remedy: Nasdaq’s Biotechnology Index

Each week a staff member from Nasdaq International Indexes gives perception into what is going on throughout a wide range of funding theses. From index and ETF efficiency, to evaluation of market developments, our consultants will cowl what’s scorching on the earth of passive funding methods.

This week, Mark Marex, CFA, discusses the Nasdaq Biotechnology Index (NBI) and its efficiency: 

• Launched in 1993, NBI is a modified market-cap weighted index monitoring Nasdaq-listed biotechnology and pharmaceutical corporations. The index is reconstituted yearly in December, and is rebalanced quarterly. The highest 5 constituents are capped at 8% every, whereas the remaining are capped at 4%.
• As of September 29, 2020, the highest 15 corporations represented 57% of the index weight, out of roughly 200 complete constituents. The largest constituents embrace a number of corporations which were on the forefront of COVID-19 therapy and vaccine analysis.
• Gilead stays one of many high constituents of the index, with the two^nd greatest weighting. Its antiviral remdesivir has confirmed to be one of the efficient therapies of COVID-19 among the many sickest sufferers. Gilead additionally just lately introduced an acquisition of Immunomedics, which has climbed the ranks to develop into the 10^th greatest holding within the index, for about $20 Billion.
• Regeneron (4^th) and Incyte (11^th) are each in superior phases of scientific trials for COVID therapies – Regeneron with monoclonal antibodies, and Incyte with cytokine storm-inhibitors.
• The highest performers year-to-date are Immunomedics – pushed by Gilead’s ~100% acquisition premium – and Moderna, which has been working with the Nationwide Institutes of Well being on a number one vaccine candidate that’s now in Section three of scientific trials.
• YTD index efficiency (~12%) continues to be stable even after cooling off through the previous few months, probably as a consequence of extra favorable summer time headlines round decrease threat of Covid-related shutdowns and healthcare system strains. Political headlines round authorized challenges to the Inexpensive Care Act, in addition to government orders round decrease drug pricing, possible additionally pressured the index decrease.
• NBI continues to be meaningfully outperforming the S&P500 Index, in addition to the Well being Care Choose Sector Index (IXV). IXV tracks well being care service corporations within the S&P500, and is closely weighted in the direction of corporations exterior of Biotech, corresponding to Well being Insurers, Retail Pharmacies, and so forth.
• For traders within the Nasdaq Biotech Index, there are quite a few ETF monitoring merchandise in Europe, Israel, and Asia (Taiwan and South Korea), in addition to within the U.S. with leveraged merchandise from ProShares. Total ETF AUM has grown by almost 85% since a short lived low in March 2020, as much as roughly $13.5 Billion. Essentially the most dominant product within the house is the iShares Nasdaq Biotechnology ETF (IBB), with almost $9 Billion in AUM.