Image by stevepb via Pixabay.
Its been a great couple of days to be an investor in the healthcare space, as several of the exchange-traded funds that focus on the sector soared higher during the week. One fund in particular, the SPDR S&P Biotech ETF (XBI 2.46%), performed extraordinarily well, roaring 5.19% higher during the past five trading days. That performance is all the more impressive when you consider that the S&P 500 was down during that same time period.
So what went right this week for the SPDR S&P Biotech ETF that caused the huge outperformance?
Peaking inside
As its name implies, the SPDR S&P Biotech ETF focuses its investments on stocks in the biotech sector, which is a part of the market susceptible to huge price swings. When the market smiles on biotech stocks, this fund can roar higher, but when the market is in a foul mood this ETF can plunge.
One unique feature of this ETF is that it follows an equal-weight strategy, which means that it invests the same same amount of capital initially in each of its 103 different holdings. However, as time passes, the fund slowly starts to become unbalanced as its best-performing stocks grow to become a larger part of the fund, and it stays that way until it's rebalanced at the end of the each quarter.
Here's a list of this fund's current top 10 positions.
| Company | Symbol | % Assets |
|---|---|---|
| Five Prime Therapeutics | FPRX | 2.34 |
| Dyax Corp | DYAX | 1.84 |
| Ophthotech Corp. | OPTH | 1.65 |
| Geron Corporation | GERN | 1.50 |
| Achillion Pharmaceuticals Inc. | ACHN | 1.39 |
| Acorda Therapeutics | ACOR | 1.37 |
| Otonomy Inc. | OTIC | 1.36 |
| Ligand Pharmaceuticals Inc. | LGND | 1.32 |
| Genomic Health Inc. | GHDX | 1.32 |
| Sangamo BioSciences Inc. | SGMO | 1.32 |
SOURCE: STATE STREET GLOBAL ADVISORS.
What went right this week?
Several of this fund's top 10 holdings put up great performances this week, with six of them jumping more than 7% in value.
Otonomy (OTIC) gave its investors a good reason to cheer this week, as it received word that the FDA approved the sale of Otiprio, its new ear medication.
Otiprio is indicated as a treatment for pediatric patients with bilateral otitis media with effusion who are undergoing tympanostomy tube placement, or TTP. While that labeling sounds as if it might be an orphan indication, it's a very common indication, and Otonomy is staring down a large market opportunity. Otonomy estimates that 1 million TTP procedures are performed each year in the U.S. and approximately 85% of patients undergoing the treatment meet Otiprio's current labeling.
Otiprio is also the first-ever FDA-approved product to treat this indication, so it's possible the drug could grow quickly after it launches for sale next quarter.
Cancer testing specialist Genomic Health (GHDX) also saw its stock jump during the week, after it presented new data at the 38th CTRC-AACR San Antonio Breast Cancer Symposium. Genomic Health announced results from several breast cancer test studies using its Oncotype DX test, showing that it's highly accurate in predicting clinical outcomes. Thus far, Genomic Health has studied more than 50,000 patients who have used its Oncotype DX test, which has accurately predicted the likelihood that using chemotherapy will show a clinical benefit to patients.
Investors cheered the data, as it reconfirms the accuracy and value proposition of Genomic Health's tests, which should hopefully help to drive sales down the road.
Now what?
While it's great to see XBI put up such a stellar performance over the past week, investors should remember that this ETF is likely to remain highly volatile for the foreseeable future. Still, since XBI has proved itself to be a successful ETF for a long time period, I continue to believe this ETF represents a nice way for investors to put money to work in the biotech sector.
