One of the first stock that I bought was called iShares Nasdaq Biotechnology ETF (NASDAQ: IBB). I bought it on 5th February 2015 at $310.51 and sold it on 13th July 2015 at $380, netting a cool 21.39%.
I like biotechnology stock and so far I have had good experience with it- including my current stock holdings, Keryx Biopharmaceuticals which I am holding at around 30% capital gain for now.
Picture source: Author’s brokerage account
Sell in May and go away? I say buy in May while everyone is selling.
On 4 May 2016, I bought IBB again, 20 of it, at $260. It is a small percentage of my portfolio- still I would like to share with you- some reasons of why I bought it.
What Is IBB About?
The investment objective of IBB ETF is to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ.
It gives investors exposure to U.S. biotechnology and pharmaceutical companies in a safer way. That is because, in an ETF, firm-specific risks of the investment is minimized- due to the diversification nature of ETF.
How Has It Performed Since Inception?
Picture source: IBB fact sheet
It has performed phenomenally since inception.
It’s 10 years annualised return is 12.42% as compared to S&P 500 ETF annualised return at 6.73% and STI ETF at 4.3%. Amazing, right?
Why I Bought It?
Picture source: IBB website
With any growth story, it has come to an end. This year IBB has fell 23.7% year to date and it has gone into the bear market territory. It has fallen more than the rest of the market in general- such as S&P 500.
I would like to take advantage of the dip– and have done so.
The core reason of why I bought this ETF is fundamentally in the monetization of the aging population in the United States and Europe for years to come. Although I will sell the stock if I deemed that the market has become too optimistic about it- which will result in the overvaluation of the stock.
One of the main reason that people are afraid to buy into biotechnology stock is because it is highly volatile. It is evidently so, with the equity beta for IBB at 1.63— which means that it is close to two times more volatile as compared to general market (S&P 500).
The near-term downside risk would be in the political arena of the upcoming the United States presidential election. Their favourite topic is in biotechnology companies marking up the price of their drugs too high- and that is bad news for biotechnology companies. A change in the law for the pricing of drugs could spell trouble for them.
In finance, volatility is perceived as risks but that does not mean that it is a bad thing.
Disclosure: I am long on IBB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Important: Please read my disclaimer.