Health and Biotech Funds

Given how much impact coronavirus had in our lives, this year is shaped by medical and health related discussions around coronavirus-related medicine, pharmaceuticals, and therapeutic. The introduction of new genomics and gene-based therapies has also created a lot of buzz on human genomics advancement. This year’s Nobel prize winner on “Genetic scissors: a tool for rewriting the code of life” has enabled new hope on how we, as a human race, can change and optimize our “life code” for the first time in history. We can certainly envision the birth of the superhuman race as we extend this technology further. With all of these news headlines and attention to this field, health related funds are performing well. Since there are so many health related ETFs and mutual funds to pick from, we will first discuss biotech-related funds in this post, and then touch on some top-performing health funds at the end.

The two biggest Biotech ETFs are SPDR S&P Biotech ETF (XBI) and iShares Nasdaq Biotechnology ETF (IBB). SPDR S&P Biotech ETF (XBI) is $5B+ diversified ETF fund with many pharmaceuticals and therapeutics companies, each position counts about 1.5% of the portfolio. iShares Nasdaq Biotechnology ETF (IBB) is a bigger $8.7B fund with a bigger concentration on traditional pharma names. Close 30% of the IBB portfolio are in 4 companies: Gilead Sciences, Amgen, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals.

We have fewer choices on the mutual fund side. The most noticeable biotech mutual fund is Fidelity Select Biotechnology Portfolio Fund (FBIOX). FBIOX invests the majority of its assets in securities of companies primarily engaged in the research, development, manufacture, and distribution of several biotechnological products and services. The fund also invests in companies that gain considerably from scientific and technological advancements in biotechnology. Top holdings in Fidelity Select Biotechnology Portfolio (FBIOX) Fund include AbbVie, Amgen, Vertex Pharmaceuticals, Regeneron Pharmaceuticals, Gilead Sciences.

Here is a comparison of their performance for the last 10 years (Jan 2010 – Oct 2020).

 CAGRStdevBest YearWorst YearMax. DrawdownSortino Ratio
XBI18.87% 28.25%48.39%-15.45%-43.59% 1.18
IBB15.81% 21.17%65.54%-21.41%-33.57% 1.21
FBIOX18.33% 24.21%65.66%-23.72%-39.49% 1.24
(XBI: Blue, IBB: Red, FBIOX: Orange)

If we extend beyond just biotech into the whole health space, we will see less volatility and a smoother performance number. The 2 top health related mutual funds are Fidelity Select Medical Technology and Devices Portfolio Fund (FSMEX) which has the majority of its holdings (almost 60%) in health care equipment companies, and only 20% in life science companies. T. Rowe Price Health Sciences Fund (PRHSX) has a very mixed portfolio of health related stocks. It even includes health service providers like UnitedHealth Group as one of its top holdings. Below is a summary chart comparing health funds (FSMEX, PRHSX) with the biotech focused fund (FBIOX). As we can see from the comparison charts below, we have a better Sortino ratio and better Max Drawdown number, but less upside in the best year. In general, diversification is better unless one has a true conviction in the biotech space.

 CAGRStdevBest YearWorst YearMax. DrawdownSortino Ratio
FSMEX17.92% 15.73%41.30%-3.42%-17.14% 1.93
PRHSX18.88% 16.64%51.40%-10.35%-21.42% 1.86
FBIOX18.33% 24.21%65.66%-23.72%-39.49% 1.24
(FSMEX: Blue, PRHSX: Red, FBIOX: Orange)
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