Biotech Bear Market: XLV —A Large Cap Healthcare ETF Outperforms

We have compared the performance of top mutual funds in the past and thought it would be interesting to see what happens in a bear market which began in September of 2015. Our last review was in February of 2015 when the bull market was in full swing. At that time the five year total performance of ETFS and Funds was comparable with the IBB up 284% and the largest specialized fund the Fidelity Select Biotechnology Portfolio (FBIOX) up 254%. The XBI also did well up 255% over five years. When biotech was hot up until the peak with IBB at $398 on July 20, 2015 all you needed to do in order to beat the market was buy two ETFS and one Mutual Fund. The sector then got rocked with a vicious sell-off in August and September followed by a recovery through December ending 2015 with an IBB at $341. A January meltdown ensued through February 11, the current low for 2016. Here is the 2016 performance of major funds and ETFS:

Chart forFidelity Select Biotechnology Portfolio (FBIOX)

  • The IBB iShares NASDAQ Biotechnology Index (ETF) is down 16.8% YTD and down 22.6% over one year.
  • The XBI SPDR S&P Biotech ETF is down 20.2% YTD and down 28.1% over one year.
  • The FBT First Trust NYSE Arca Biotechnology Index Fund is down 15.6% YTD and 21.6% over one year.
  • The 3 Star Fidelity Select Biotechnology Portfolio (FBIOX) is down 22.7% YTD and down 30.8% over one year.
  • The XLV Healthcare SPDR ETF is down 1% YTD and down 4.2% over one year.

IBB iShares Nasdaq Biotechnology daily Stock Chart

Larger healthcare and “health sciences” funds and ETFs such as the XLV and PRHSX have fared much better because they hold large cap drug stocks that pay dividends and are more diversified with med-tech, insurers, services and life science tools companies.

But most of these funds are also laggards and a few are much smaller than they were during the bubble days of 2015.

Here is the recent YTD and one year performance of seven leading life science, medtech and biotechnology mutual funds:

Fidelity Select Biotechnology Portfolio (FBIOX) down 22.73%, 30.76%. Total Assets $9.96B.

T. Rowe Price Health Sciences Fund (PRHSX) down 7.46%, 19.92%. Total Assets $11.78B.

T. Rowe Price Health Sciences (PRHSX)

Franklin Biotechnology Discovery (FBDIX) down 16.7%, 32%. Total Assets $1.12B

Rydex Basic Biotechnology Fund Class A (RYBOX) down 15.4%, 24.5%. Total Assets $542M.

Black Rock Health Sciences Opp. Fund (SHSAX) down 3.94%, 16.9%. Total Assets $5.38B.

BlackRock Health Sciences Opps Inv A (SHSAX)

Janus Global Life Sciences Cl A (JFNAX) down 7.8%, 23.2%. Total Assets $3.79B.

Prudential Jennison Health Science Fund Class A (PHLAX) down 13.4%, 31.8%. Total Assets $2.46B.

Summary Part 1

  1. The life sciences and biotech sector has trailed the S&P over the past 12 months.
  2. More diversified “healthsciences” funds have outperformed “pure-play” biotech funds.
  3. Biotech stocks as tracked by the larger cap IBB have begun a weak recovery since mid-February but still lag other sectors such as energy, industrials and consumer staples YTD.
  4. Drug pricing remains a major issue going forward through the election in 2016.
  5. Large cap drug stocks with dividends outperform. XLV is the leading ETF.

In Part-2 we will look with more detail at the holdings of the major funds and ETFS.

XLV Health Care Select Sector SPDR ETF daily Stock Chart


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