Year End Biotech Check Up—XBI

By Emily Theurer, Research Analyst

• In hopes of taking part in the industry’s recent record breaking wave of M&A activity, thousands of biotech executives from mid-and-small size firms attended the 37th annual JP Morgan healthcare conference last week
• After a record $53.4 billion in deals during 2018, M&A activity in 2019 has already broken that record, fueled by the $78 billion Bristol-Myers Squibb/Celgene deal and the $7.2B Eli Lilly/Loxo Oncology deal that are now likely to ignite further buyout speculation across the industry¹
• Amidst this boom, valuations remain constructive given the recent market sell-off, as based on a 5 metric valuation screen (P/B, P/E, NTM P/E, P/S, P/CF) the biotech industry currently trades in the average bottom quintile relative to the S&P 1500 over the last 15 years²

The Takeaway: Investors looking to remain defensive in this late cycle environment and capture noncyclical growth may want to consider the Health Care Select Sector SPDR^® ETF [XLV]. For adding a bit of offense to a defensive-growth health care position, consider overlaying the SPDR S&P Biotech ETF [XBI]. With its modified equal weighted index methodology, XBI, as opposed to competing market cap weighted strategies, exhibits a higher tilt toward small-and-mid-cap firms that have the potential to be acquisition targets if this M&A trend continues, evidenced by XBI being overweight the target in 14 out of the top 17 M&A deals by size since 2014, leading to positive alpha (i.e. an M&A premia) over its market cap weighted competitor (IBB) on those acquisition days.³

Record Levels of M&A Activity Resulting in Increased EPS

Source: FactSet, as of 1/10/2019

Standard Performance

Source: spdrs.com, as of December 31, 2018

Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. For SPDR ETFs, visit spdrs.com for most recent month-end performance. The market price used to calculate the Market Value return is the midpoint between the highest bid and the lowest offer on the exchange on which the shares of the Fund are listed for trading, as of the time that the Fund’s NAV is calculated. If you trade your shares at another time, your return may differ.

Interested in learning more about SPDR ETFs? Sign up for our emails by clicking here.

¹ Factset, as of 1/10/2019

² Factset, Period: 12/24/2018 – 1/10/2019. Broader Market is represented by the S&P 500 index.

³ Bloomberg Finance, L.P, 01/01/2014 – 1/10/2019

The views expressed in this material are the views of the SPDR Research and Strategy team and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Information represented in this piece does not constitute legal, tax, or investment advice. Investors should consult their legal, tax, and financial advisors before making any financial decisions.

For Investment Professionals Only.

Important Risk Information:

Actively managed ETFs do not seek to replicate the performance of a specified index. Because the SPDR SSGA Active Asset Allocation ETFs are actively managed, they are therefore subject to the risk that the investments selected by SSGA may cause the ETFs to underperform relative to their benchmarks or other funds with similar investment objectives.

Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors

Foreign (non-U.S.) Securities may be subject to greater political, economic, environmental, credit and information risks. Foreign securities may be subject to higher volatility than U.S. securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

Intellectual Property Information: Standard & Poor’s, S&P and SPDR are registered trademarks of Standard & Poor's Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.

Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs.

Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 866.925.0253 or visit www.spdrs.com. Read it carefully.

Not FDIC Insured - No Bank Guarantee - May Lose Value

© 2019 State Street Corporation. All Rights Reserved.

2378469.1.1.AM.INST
Exp. Date: 1/31/2019