Extending what’s been a busy stretch of unique healthcare ETF launches, the Defiance Nasdaq Junior Biotechnology ETF (IBBJ) debuted on Tuesday, coming to market at a time when biotechnology ETFs, broadly speaking, are setting blistering paces due to the coronavirus pandemic.
The latest ETF from Defiance follows the Nasdaq Junior Biotechnology Index (NBIJR), the small- to mid-cap offshoot of the widely followed Nasdaq Biotechnology Index. That benchmark launched on April 30.
“The Nasdaq Junior Biotechnology Index is designed to track the performance of a set of securities listed on The Nasdaq Stock Market® (Nasdaq®) that are classified as either biotechnology or pharmaceutical according to the Industry Classification Benchmark (ICB),” according to Nasdaq.
IBBJ’s 176 member firms “are “engaged in biotech research and development, the sale or licensing of biological substances for the purposes of drug discovery and diagnostic development; and pharmaceutical manufacturers of prescription or over-the-counter drugs, including vaccines and development and manufacturing companies,” according to Defiance.
Right Time for IBBJ
The small-cap healthcare segment and sector-related ETFs have been a surprising standout in the markets so far this year.
Fast-growing companies have been outperforming their value-styled peers, or companies described as trading at a low multiple of their book value. The growth category has pushed ahead of value through much of the decade-long bull rally, and it continues to hold true in 2020.
Proving the potency of small-cap biotech, IBBJ’s underlying index is up nearly 10% since inception. Smaller companies tend to have more room to run or grow, compared to larger companies, especially in areas like biotechnology and pharmaceuticals where smaller companies can come out with breakout innovative medicines that can generate huge growth. These smaller companies are also potential acquisition targets for larger companies seeking to diversify their product lines.
“Junior biotech companies, with a market capitalization that is less than $5 billion, have the potential advantage of a Food and Drug Administration more receptive to new cutting-edge and rare-disease therapies,” according to Defiance. “They are possibly also strengthened by increased patient lobbying and a greater willingness by insurers to pay for treatments. Combined with the potential for mergers-and-acquisitions and the U.S. government’s recent gigantic Covid-19 aid to small and mid-sized companies, small-caps seemed likely to lead the domestic recovery.”