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Using Biotechnology Stocks to Help Navigate the Ongoing COVID Crisis

December 06, 2021

Read Time 4 MIN

 

Our new normal

The search to find treatments and preventive solutions to COVID-19 has focused investor attention on science and medicine, reinforcing the view that the biotechnology industry may be a good investment, especially during these times.

On November 26, the World Health Organization designated Omicron as a variant of concern due to a large number of mutations, with preliminary data pointing to an increased reinfection risk. More research still needs to be done on the severity risk of this variant. However, the news of Omicron could be a sign that the pandemic has reached a new stage, yet again.

It has been close to two years since the virus was first identified in the Chinese city of Wuhan. Since then, we have been continuously fighting the war against this disease. With each new outbreak and variant, comes new fears, government lockdowns and hopes for recovery through science and medicine in the form of effective vaccines. Could this be our new normal?

On November 26, Large caps Moderna, BioNTec, Novavax surged on Omicron variant

Global markets took their biggest hit in more than a year on November 26, as the discovery of coronavirus variant Omicron sparked a sell-off in companies most exposed to the pandemic.

While Omicron fears rattled the world's financial markets, shares of major coronavirus vaccine makers rose as a result of the latest pandemic jitters. Moderna and BioNTec are currently working to adapt their COVID-19 vaccines to address the new variant. The first steps of developing a new vaccine overlap with the research that is necessary to evaluate whether the shot will be needed—a process that both BioNTec and Moderna began last week as news of the new variant began to spread around the world.1 Meanwhile, Novavax also mentioned that it had started working on a version of its COVID-19 vaccine to target Omicron and would have the vaccine ready for testing and manufacturing in the next few weeks.2 Apart from the Omicron development, Moderna’s stock also rose as the Company’s vaccine booster shots were officially cleared for use in all U.S. adults by the FDA.

Chart 1: Moderna’s price soars on Omicron fears and vaccine booster shots

BBH_Chart 01_V2_2021.12_Blog (2).svg

Source: Factset. Data as of November 30, 2021. Past performance is not indicative of future results.

Attractive fund performance and exposure to large cap stocks

Until recently, investor mindsets had shifted to a “living with COVID-19” mentality, supported by abundant stimulus and expectations that vaccines would keep the virus in check. However, the Omicron variant has left many investors questioning how to position their portfolios going forward.

Biotechnology stocks have the potential to provide investors with significant gains if a product, such as the vaccine, is deemed effective and safe. However, one of the key risks is the possibility that some products may never make it to market. One way to mitigate this risk is to focus on companies that are proven biotech leaders and have strong research and development capabilities—such as those considered large cap stocks.

VanEck Biotech ETF (NASDAQ: BBH), which seeks to track the MVIS US Listed Biotech 25 Index, has outperformed its Index year-to-date.3 Further, since the beginning of the year, BBH, which has a higher exposure to large caps stocks including Moderna and BioNTech, has outperformed other major healthcare indices (Table 1). Past performance is not a guarantee of future results. Please visit vaneck.com for standardized performance as of the most recent month end.

Table 1: Trailing returns: MVIS US Listed Biotech 25 Index versus other indices

  1 month (%) 3 months (%) YTD (%) 1 Year (%) 3 Years (% p.a.) 5 Years (% p.a.) Since common inception date (% p.a.)
MVIS US Listed Biotech 25 Index -1.92 -9.44 15.49 16.29 16.97 13.10 12.85
NASDAQ Biotechnology Index -3.88 -10.26 1.27 5.90 12.47 11.45 11.07
S&P Biotechnology Select Index -6.78 -12.51 -17.29 -12.38 12.72 13.38 12.60
S&P 500 Index -0.69 1.32 23.18 27.92 20.38 17.90 10.34

Source: VanEck, Morningstar Direct, as at November 30, 2021. Past performance is not indicative of future results. Common inception date is 1/31/2004.

While Biotech stocks can exhibit heightened volatility, investors can look to an exchange traded fund, such as BBH to help mitigate risk while providing exposure to a portfolio of large, liquid Biotech companies. For investors looking to participate in the biotech revolution, BBH provides diversified exposure to the industry without forcing investors to pick individual winners or having exposure to speculative small companies.

Access the opportunity

Consider the VanEck Biotech ETF (NASDAQ: BBH) when positioning your portfolio to include biotech stocks. BBH, with 25 holdings in the portfolio, focuses on the biotech segment of the US market.

  • Access to the biotech sector, a sector currently in high demand.
  • Provides exposure to some of the largest biotech companies that are at the forefront of the race to find a vaccine for the pandemic.
  • Both U.S. and U.S.-listed foreign companies may be included in the portfolio, allowing for enhanced industry representation.

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Important Disclosures:

1 Source: Bloomberg

2 Reuters, Novavax developing vaccine that targets new COVID-19 variant, November 26, 2021

3 Source: VanEck, as of 11/30/21

This material is for informational purposes only. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and are subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the companies mentioned herein. Fund holdings will vary. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/bbh/holdings.

An investment in the VanEck® Biotech ETF (BBH) may be subject to risks which include, among others, investing in the biotechnology industry, equity securities, health care sector, depositary receipts, medium-capitalization companies, issuer-specific changes, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

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