The biotech sector has several periods of seasonal strength during the year, including the current period from mid-October to the first week in January. What are prospects this year?
The Biotech sector has a history of moving higher in anticipation of major conferences where biotech companies have an opportunity to announce results of research on new biotech products and services. The next major conference is the Biotech Showcase 2013 held in San Francisco for three days starting Jan. 7. The event is described as "one of the largest health-care conferences that attracts investors and biopharmaceutical executives from around the world."
This year, favourable seasonal influences in anticipation of the San Francisco conference occurred later than usual. The AMEX Biotechnology Index at 1,520.20 bottomed at the end of October at 1,391.58. Intermediate trend turned up last week on a break above resistance at 1,478.96. Next resistance is at its all-time high at 1,623.59.
Last week the Index moved above its 20-, 50- and 200-day moving averages. Short-term momentum indicators are trending up. Strength relative to the S&P 500 index turned positive at the end of October. Accumulation at current or lower levels is favoured for a seasonal trade lasting at least until early January.
The preferred way to invest in the sector is through an exchange traded fund that holds a diversified basket of securities. Individual equities in the sector are notorious for their high risk/high potential return profiles. A basket of securities reduces individual security risk.
Several exchange traded funds are available on U.S. exchanges. The most actively traded ETF is Biotech iShares. Units track the NASDAQ Biotech Index consisting of 121 equities in the sector listed on the Nasdaq. Largest holdings are Regeneron Pharmaceutical, Amgen, Gilead, Alexion Pharmaceutical, Celgene and Biogen. Management expense ratio is 0.48 per cent. Other less actively traded ETFs include Biotech SPDR, Market Vectors Biotech and First Trust AMEX Biotech.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst at Horizons Investment Management, offering research on Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available athttp://www.timingthemarket.ca/