Biotech Rallies: Composite Models Take Advantage

biotechNew York (  – The biotech sector has been on an incredible run over the last four years and so far in 2015, the rally has continued. In the last four years, the iShares Nasdaq Biotechnology ETF (NYSE: IBB) has gone up 246% compared to the 73% gain for the S&P. Incredibly, since President Obama took office in January 2009, the IBB is up 438%. Many investors thought that the healthcare reform that the newly elected President sought would make it tough on the biotech, pharmaceutical and healthcare sectors, but all three sectors have outpaced the overall market since January 2009.

Turning our focus to 2015, the IBB rose almost 19% during the first three and a half months of trading while the S&P rose a meager 2.84% during this same time frame. The IBB is the most actively traded biotech ETF with the second most active being the SPDR S&P Biotech ETF (NYSE:XBI). The XBI was up 24.6% from the beginning of the year through April 13.

With the biotech sector performing so well so far this year, we decided to compare the IBB and XBI to the HedgeCoVest composite models that invest in the biotech sector. There is theHedgeCoVest Biotech Long-Only model and the HedgeCoVest Biotech Long/Short model.


*The information contained herein does not suggest or imply and should not be construed, in any manner, a guarantee of future performance and/or investment advice. Past performance does not guarantee future results. Returns are historical and based on data believed to be accurate and reliable.

The HedgeCoVest composite models have not only kept pace with the ETFs, they have both exceeded the performance of the iShares Biotech ETF. The HedgeCoVest Biotech Long-Only model has produced a gain of 29.48% from the beginning of the year through April 13 and the HedgeCoVest Biotech Long/Short model gained 22.8% during the same time frame.

With the biotech sector moving up on what seems like a straight line, it is interesting to see the actively managed models on the HedgeCoVest platform keeping pace with the passive portfolios of the ETFs. The one time period where the biotech sector saw much of a downdraft was from March 19 through March 26. If you look at the chart, you can see that both the IBB and XBI ETFs moved down rather sharply while the two HedgeCoVest models held up better. The XBI fell 9.83% during the week in question while the IBB fell 6.69%. The HedgeCoVest Long-Only model fell 1.93% during the pullback in March while the HedgeCoVest Long/Short model only dropped 0.94% during this same period.

The takeaway from this comparison is that even when a market or a sector is rallying sharply, active management can help investors. Whether it is selecting stocks within the sector that are performing better than the sector as a whole or by taking profits at the right time. Or perhaps it is just by hedging the portfolio, active management seems to provide an advantage when a market or sector is changing rapidly.

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