Continued volatility in the stock market left broad-market exchange-traded funds nearly unchanged in November, with the SPDR S&P 500 ETF (NYSEMKT:SPY) gaining less than half a percent for the month. Yet one benefit of ETFs is that they can help you narrow in on more lucrative parts of the market.
Last month, several areas showed promise, even while the major market benchmarks left many investors looking for more. Let's look more closely at three ETFs that did especially well in November, and see if they have what it takes to keep doing well.
Pharma stocks stay healthy
The SPDR S&P Pharmaceuticals ETF (NYSEMKT:XPH) climbed 10.5% in November. Among its top holdings, Intra-Cellular Therapies (ITCI) was up more than 11%, continuing a run that has helped the stock double in price since the end of August following positive data on late-stage experimental schizophrenia drug candidate ITI-007. Nektar Therapeutics (NKTR) posted even more impressive gains, rising more than 30% after investors were impressed with its Movantik/Moventig constipation treatment and its clinical pipeline.
A big part of the reason why this ETF jumped so far is that it tracks a modified equal-weight index. That means that small stocks that most market-cap-weighted benchmarks nearly ignore, such as Intra-Cellular and Nektar, can have a huge impact on returns. With two of its top four holdings having at least doubled so far in 2015, the usual big-pharma names won't be as important to the SPDR Pharmaceuticals ETF's future performance as they are for most similar sector ETFs.
Regional banks outperform their too-big-to-fail counterparts
The SPDR S&P Regional Banking ETF (NYSEMKT:KRE) was up almost 7% in November. Several of the ETF's largest holdings posted solid gains, with BBCN Bancorp (BBCN) climbing 13%, and Bank of the Ozarks (OZRK) posting a better than 8% rise.
Hopes for higher short-term interest rates are heightening prospects for the financial industry generally, but they have an outsized impact on regional banks. Because they tend not to have the same access to capital that the larger players in the banking industry have, regionals get even more benefit from the rising net interest spreads that higher rates can bring.
Some investors following the sector are concerned at the gains that these stocks have already posted, as several of the ETF's top holdings have already climbed 20% to 50% so far this year. Nevertheless, as the Fed moves slowly toward taking action on the rate front, these banks could continue to gain attention from investors.
A rebound for another hard-hit healthcare subsector
Biotechs got hit hard during the summer stock market slump, but November brought a continued rebound. The SPDR S&P Biotech ETF (NYSEMKT:XBI) jumped 8.5%, with components including Dyax (DYAX) rising 22%, and Kite Pharma (KITE) posting a 21% gain for the month. Dyax soared after getting a takeover bid based on the promise of its phase 1 hereditary angioedema drug. Kite Pharma's gains came following favorable attention for its experimental non-Hodgkin's lymphoma treatment KTE-C19.
More generally, many biotech stocks bounced due to investor opinion that they had taken too large a hit in recent months. Concerns about political pressure to reduce prices of drugs and other medical treatments still exist, but the sector has fended off similar troubles in the past. Moreover, with the drive for consolidation in the healthcare sector, biotech stocks are ripe for the plucking among those seeking to make major moves in the merger and acquisition market.
These three ETFs did quite well in November, as many of their stock holdings performed strongly throughout much of 2015. Sectors tend to move in and out of favor, but some of the stocks that have driven the results for these three ETFs have plenty of potential to keep climbing higher.