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
|Ticker||Name||YTD||1 Year||3 Year||5 Year||10 Year||Since
|XBI (NAV)||SPDR S&P Biotech ETF||-14.91||-14.91||1.12||11.20||11.20||12.47||1/31/2006||0.35|
|XBI (MKT)||SPDR S&P Biotech ETF||-15.04||-15.04||1.09||11.20||15.36||12.46|
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.