It’s been a hard year for a lot of the biotech industry, with many hedge funds ending the year with significant losses, but there have been a number of shining stars that are expected to continue to offer investors great performance opportunities. The Wall Street Journal reports that investors who focused on COVID-19 stocks, short selling, and mergers within the industry have reaped excellent returns, and all of those are investing trends that are expected to continue to be profitable for 2022.
With the pandemic still affecting countries globally, COVID-19 vaccine stocks have continued to profit this year; Moderna is a prime example that began the year around $100 a share, hit a peak of close to $500 during the summertime, and is now ending the year close to $275 a share. The introduction of Omicron, the latest, highly contagious variant, has seen a renewed push for boosters and should see demand continue into next year for all of the major COVID vaccine producers.
“Anything that’s Covid-related has done well, or at least held up,” says Brad Loncar at Loncar Investments, which created two biotech exchange traded funds.
It was a big year for mergers as well within biotech, and investors have benefited hugely. One of the major mergers was GW Pharmaceuticals PLC being acquired by JASS Pharmaceuticals in May in a deal worth over $7 billion. GW Pharma makes cannabinoid-based prescription medications and was up almost 90% for the year when it was acquired. Dicerna Pharmaceuticals also had a major acquisition that proved profitable for investors.
Looking ahead, this trend is expected to continue next year as major pharmaceutical companies buy into up-and-coming biotech companies, particularly with smaller companies that might have suffered this year. Short sellers also did well this year with some companies reporting disappointing clinical trials.
Leveraged Returns on Biotech
The ProShares Ultra Nasdaq Biotechnology ETF (BIB ) is a leveraged option for investors looking for exposure to biotechnology, pharmaceuticals, and COVID-19 vaccine makers.
The fund captures twice the daily return of the underlying Nasdaq Biotechnology Index before fees and taxes. The exposure resets daily, and as such, does not provide a simple 2x multiplier on the return of the underlying index.
Accordingly, BIB should be monitored regularly by potential investors.
By utilizing swap agreements with major banking institutions and investing in shares of the companies tracked within the index, such as BioNTech (BNTX), Moderna (MRNA), Jazz Pharmaceuticals (JAZZ), and Dicerna Pharmaceuticals (DRNA), BIB rebalances daily to align with the index.
BIB carries an expense ratio of 0.95%, with a contractual waiver that ends on September 30, 2022.
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