Hello! This week’s ETF Wrap looks at the surge in biotech funds, as well as an “unusual” trend in U.S. small-cap stocks versus small-cap tech stocks.
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Some exchange-traded funds buying biotech stocks are on the rise in 2024.
The SPDR S&P Biotech ETF XBI, with $8 billion in assets under management, as well as two much smaller ETFs in the biotech category, Virtus LifeSci Biotech Clinical Trials ETF BBC and ALPS Medical Breakthroughs ETF SBIO, posted big gains in February and this year to today, Aniket Ullal, head of ETF data and analytics at CFRA Research, said in a phone interview Thursday.
While the SPDR S&P Biotech ETF has seen “pretty strong flows” over the past month, they are “not off the charts” despite its rising performance this month, Ullal said. The fund’s shares jumped 12.6 percent in February for year-to-date gains of more than 10 percent, according to FactSet data.
“We are now seeing major components” within small-cap stocks such as biotech and retail “break out to two-year highs, which we believe is a prelude to the small-cap index itself,” said Jeff de Graaff, head of technical research at Renaissance Macro Research, in a note on Thursday.
The SPDR S&P Biotech ETF and the SPDR S&P Retail ETF XRT are “coming out of big bases” with “domestic momentum,” de Graaf said. “Both groups are among the best performers in this area in our Russell 2000 market cycle watch.”
The Russell 2000, a gauge of U.S. small-cap stocks, was up 1.4 percent this year through Thursday. Small-cap stocks have generally lagged U.S. large-cap stocks, as measured by the S&P 500 SPX, which is up 6.8% so far in 2024, according to FactSet data.
Meanwhile, shares of the Virtus LifeSci Biotech Clinical Trials ETF, with $12 million in assets under management, jumped 18.5% in February, giving it a 23% year-to-date gain. The ALPS Medical Breakthroughs ETF, which has $125 million in assets, jumped 11.6% this month for a 12.5% gain so far in 2024.
The much larger SPDR S&P Biotech ETF seeks to track an equally weighted index of U.S. biotech stocks, with its largest holdings as of Feb. 28 being Viking Therapeutics Inc.
VKTX
,
Iovance Biotherapeutics Inc.
Iowa
and Cytokinetics Inc.
QUOTE
,
according to data on the website of State Street Global Advisors.
Read it: Viking Therapeutics shares more than double as investors enjoy cheap access to weight-loss drug craze
The fund “broke out above its January high, resuming its long-term reversal phase after a healthy period of digestion,” Fairlead Strategies analysts, led by the firm’s founder Katie Stockton, said in a Feb. 27 note. “Next resistance is near $105.”
Shares of the SPDR S&P Biotech ETF fell 3.1% on Thursday to $98.42.
As for fund flows, the SPDR S&P Biotech ETF has attracted more than $337 million in the past month as of Feb. 28, bringing its inflows this year to more than $92 million, FactSet data show.
Meanwhile, shares of the iShares Biotechnology ETF IBB, which also manages $8 billion in assets, are up just 0.7% in 2024.
But the iShares Biotechnology ETF tracks a market-cap weighted index of U.S.-listed biotech stocks. His top three holdings as of February 28 are Vertex Pharmaceuticals Inc.
VRTX
,
Regeneron Pharmaceuticals Inc.
RAIN
and Amgen Inc.
AMGN
,
according to fund data on BlackRock’s website.
The SPDR S&P Biotech ETF has more of a “small-cap slant” because it tracks an equally weighted index of U.S. biotech stocks, Ullal said.
Information Technology
Small-cap information technology stocks typically outperform small-cap stocks overall, but they have “underperformed by a statistically significant amount over the past 100 days,” Jessica Rabe, co-founder of DataTrek Research, said in an emailed note Thursday.
This could mean that change is coming.
“History says that small-cap tech should regress to the mean and outperform small-caps overall over the next roughly four calendar months,” Rabe said. “However, it is important to remember that this is a relative, not an absolute, analysis.”
DataTrek found that the Invesco S&P SmallCap Information Technology ETF PSCT lagged the iShares Core S&P Small Cap ETF IJR, which tracks the S&P Small Cap 600 SML index, by nine percentage points over the past 100 days. “This is very unusual,” Rabe said.
Shares of the Invesco S&P SmallCap Information Technology ETF rose 0.9% in February, but are still down 3.6% so far in 2024, according to FactSet data.
The fund’s performance lagged the year-to-date gains of the iShares Core S&P Small Cap ETF, whose shares jumped 3.2 percent in February to trim year-to-date losses to 0.8 percent, FactSet data showed.
Small vs. Large Cap in Technology
U.S. small-cap tech stocks generally lagged large-cap tech stocks, “but not enough to signal a buy,” according to DataTrek’s Rabe.
The XLK Technology Select Sector SPDR Fund, an ETF that tracks S&P 500 technology stocks, is up 4.7% this month for a 7.5% year-to-date gain. In contrast, the Invesco S&P SmallCap Information Technology ETF is down 3.6% this year after rising 0.9% in February, FactSet data showed.
DataTrek continues to favor large-cap tech — and U.S. large-cap stocks in general over small-caps — in “the current mid-cycle market environment, given their global scale and superior competitive advantages,” according to the firm’s note. “Furthermore, large-cap tech is better positioned to continue to benefit from structural growth trends such as the AI generation,” Rabe said.
As usual, here’s your look at the best and worst performing ETFs in the past week through Wednesday, according to FactSet data.
The good…
| Top performers | % Productivity |
| ARK 21Shares Bitcoin ETF ARKB | 16.1 |
| Bitcoin ETF BITB | 16.0 |
| Fidelity Wise Origin FBTC Bitcoin Fund | 16.0 |
| iShares Bitcoin Trust IBIT | 15.9 |
| Grayscale Bitcoin Trust GBTC | 15.9 |
| Source: FactSet data as of Wednesday, February 28. Start date February 22. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs valued at $500 million or more. |
…and the bad
| The weakest performers | % Productivity |
| AdvisorShares Pure US Cannabis ETF MSOS | -4.7 |
| iShares MSCI Mexico ETF EWW | -3.4 |
| Schwab Fundamental Emerging Markets Large Company Index ETF FNDE | -2.3 |
| abrdn Physical Platinum Shares ETF PPLT | -2.2 |
| iShares MSCI China ETF MCHI | -2.2 |
| Source: FactSet |
New ETFs
- Regan Capital announced Feb. 28 that it has launched the Regan Floating Rate MBS ETF MBSF, an actively managed fund that invests primarily in floating-rate agency residential mortgage-backed securities.
- DWS said on February 27 that it launched Xtrackers RREEF Global Natural Resources ETF NRES, the first actively managed exchange-traded fund.
- iM Global Partner and Polen Capital said on 22 February that they plan to launch the actively managed ETFs Polen Capital International Growth (PCIG) and Polen Capital China Growth (PCCE) on 8 March.
Weekly ETF readings
