On the lookout for an ETF that might respond particularly well to rate cuts? One rate-sensitive ETF to watch is seeing returns spike even before rate cuts arrive. With cuts potentially nearer than many market observers had previously thought, investors may be looking for a strategy poised to benefit. The ALPS Medical Breakthroughs ETF (SBIO ) may stand out in that case given its recent performance and its approach.
See more: As Rate Cuts Near, OUSM Is Sending Key Buy Signal
SBIO has returned 15.2% over the last three months per YCharts. That stands out relative to its category return of 8.36%. It has outperformed its category per YCharts on a one-year and YTD basis, too.
The strategy charges 50 basis points (bps) for its approach. The rate-sensitive ETF tracks the S-Network Medical Breakthroughs Index. The index presents a market-cap-weighted group of U.S. biotech names with one or more drugs in Phase II or III FDA clinical trials. SBIO screens for sustainability, looking for firms with cash on hand to last two years. Additionally, the ETF looks for firms with market caps between $200 million and $5 billion.
What makes SBIO a rate-sensitive ETF to watch on top of its recent performance? Biotech firms historically take out significant loans while waiting for drug or treatment approvals. That cost those firms far less before the Fed’s rapid rate hikes. Now, with rate cuts poised to arrive in due course, SBIO’s holdings could benefit disproportionately.
Biotech names also appeal as a slight source of diversification compared to the S&P 500-leading mega caps. Biotech presents a degree of tech exposure while also avoiding a significant amount of concentration risk from those names. For those investors looking for a rate-sensitive ETF that’s heating up, SBIO may appeal.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for SBIO, for which it receives an index licensing fee. However, SBIO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SBIO.
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