What to Know About the Biotech Sell-Off
It was another tough week for the overall market as 2016 has opened with a thud. The S&P 500 has lost eight percent of its value in the first two trading weeks of trading, and the NASDAQ is down more than 10% as the market has gotten off to its toughest two-week start to open a year in the stock market’s long history.
Biotech fell through its trading floor of 300 on the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB). This floor had been in place for roughly two and a half months. However, the index was actually up in the last two trading sessions of the week when the overall market was down after a rally Thursday and big sell-off on Friday. It looks we have a new floor of around 280 on the IBB. Also encouraging was that three of the five “core” positions in our portfolio were actually slightly up in a down week. The divergence in performance between the large cap companies in the sector versus the small cap concerns in the biotech sector continues to widen as we have a “flight to safety” rotation continuing to take place.
Performance Update:
Biotech continued its decline along with the general market this week. Although our portfolio had a significant decline as well, both the aggressive and conservative portfolio allocation gained against the benchmark and continue to outdistance it. We added another more than 200 basis points this week against our bogey. Still a small consolation at the moment, but one worth noting. The overall biotech sector is now down 17.39% since the start of May not accounting for dividends. This is using the iShares Nasdaq Biotechnology ETF, the largest ETF focused on the biotech sector with almost $9 billion in assets.
Our large cap core positions are down just 3.98% on average while our small cap portion of our portfolio continues to be officially in bear market territory down 22.95%, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 13.47%, 392 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 8.72%, 867 basis points above the benchmark.
Portfolio News:
AbbVie (NYSE: ABBV) was one of three of our large cap positions that managed to post slight gains during the downward trading action last week. Both Morgan Stanley reiterated their buy ratings on the stock last week. TG Therapeutics (NASDAQ: TGTX) held up well in its first week in the portfolio and saw its share price increase during the week. Xencor (NASDAQ: XNCR) also ended the week in positive territory after it was reiterated as a “Buy” over at Canaccord Genuity which has a $20.00 a share price target on the stock. Finally, Biogen (NASDAQ: BIIB) made the Jefferies list of three biotech stocks they see with huge upside potential on for the rest of 2016.
Coming Attractions:
I think one of the core things that will start to get the biotech sector off the mat, other than stabilization in China and the oil markets which the overall market needs right now, is upcoming earnings results. Over the next few weeks, we should start to see earnings reports come out from many of our core positions like Gilead Sciences (NASDAQ: GILD). I expect earnings to largely beat expectations when the earnings reports from Amgen (NASDAQ: AMGN) and Biogen kick off the earnings parade at the end of this month.