Some market participants were enthusiastic about President Trump’s return to the White House. One reason was the notion that the regulatory environment in Corporate America would become more hospitable. This could potentially stoke an uptick in mergers and acquisitions (M&A) activity this year.
He’s been in office less than a month and that consolidation resurgence hasn’t materialized in earnest as of yet, but some experts believe as the president’s regulatory regime crystalizes, the ensuing clarity will fan the flames of takeover speculation and realized deals. That could lift the fortunes of the moribund healthcare sector and exchange traded fund such as the Invesco NASDAQ Future Gen 200 ETF (QQQS ).
QQQS follows the Nasdaq Innovators Completion Cap Index and while it’s not a dedicated healthcare fund, it’s a more than adequate proxy on smaller healthcare stocks, including biotech fare, because that sector represents 45% of the ETF’s lineup. That weight could position QQQS investors for benefits should healthcare mergers and acquisitions rebound as hoped.
Healthy Outlook for Healthcare M&A
The status of QQQS as a home to a slew of smaller healthcare stocks is pertinent in environments when consolidation activity increases because smaller healthcare companies make for viable targets for their larger, cash-rich counterparts.
“Pharmaceuticals and life sciences is another promising area for M&A. These companies typically don’t have to worry about fluctuations in demand tied to the broader economy’s health,” reported Jacob Sonenshine for Barron’s.
In addition to pure pharma and life sciences firms being credible targets, market observers believe the same is true of biotechnology stocks – a segment that has a long-running track record of consolidation. That has slowed a bit in recent years, but it could poised to bounce back this year.
“Large drug and medical devices makers can scan the hundreds of smaller biotechnology and healthcare companies developing all sorts of new treatments, therapies, and products. That’s why, historically, more than 5% of healthcare companies receive a tender offer each year on average, according to Trivariate Research’s Adam Parker,” reported Sonenshine.
Even without the biotech mergers and acquisitions catalyst, QQQS has been a steady performer. Over the past 90 days, the Invesco ETFs is up 6.77%. During that same period, the Russell 2000 Index is lower by 1.70%.
Granted, that’s not a lengthy performance window, but it could signal two things. First, if small-caps rally in earnest, QQQS could be a leader in that ETF category. Second, perhaps investors just need to be patient when it comes to M&A activity bouncing back.
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