Biotechnology mutual funds
Recently, investors have begun to move away from sectors which offered higher dividends at lower risk towards companies. Funds are now being allocated to areas which offer growth at the cost of higher risk. This essentially signifies a move from sectors such as utilities and real estate to the likes of consumer discretionary financials and biotechnology stocks
Several IPO launches
The flurry of biotech IPOs witnessed recently is the clearest indication that the sector is back in favour. This year witnessed more than 30 new biotech IPOs, the highest number since 2000. In fact this is the second best year in terms of IPOs, if one considers the number of offerings.
Clearly, these new launches are a result of young companies, which started of in the 2010-2012 period doing rather well. Stocks like Clovis Oncology, Inc. (CLVS), Tesaro, Inc. (TSRO) and Aegerion Pharmaceuticals, Inc. (AEGR) have gained 300% to 500% since they were launched. Aside from the occasional disappointment such as Pacific Biosciences of California, Inc. (PACB), this proves that the large number of IPOs is a good indicator of the sectors resurgence.
For a greater part of the last decade, many mutual funds had studiously avoided biotech stocks after the genomics bubble burst. The risk-return trade-off in the case of biotechnology companies was considered too high for them become solid investments.
Again, post 2010, the scenario has changed rapidly. The Nasdaq Biotech Index has outperformed other segments in a most conclusive fashion. The margin is close to 10, 000 basis points or 100%.
This means that general funds, investing across sectors, who have assigned lower weightages to their biotech holdings, have underperformed those with overweight positions. Sector specific funds, focussing solely on biotech, have performed even better.