This is another election year and one of the presidential variety, meaning investors and voters can expect to hear plenty about politicians’ efforts to lower drug costs. For now, biotech ETFs, such as the VanEck Vectors Biotech ETF (BBH ), are proving sturdy in the face of the drug cost headwinds.
BBH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Biotech 25 Index (MVBBHTR), which is intended to track the overall performance of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment.
Historical data confirm that biotech stocks perform significantly better in years that aren’t election years, suggesting gains for BBH and friends could be subdued this year until after the November election.
“As brigades of pharmaceutical executives and money managers arrived here for the biggest health-care investor conference of the year, it was looking as if Sen. Bernie Sanders could win the Iowa caucuses reports Josh Nathan-Kazis for Barron’s. While the caucuses are not always a great predictor of who the presidential nominee will be, a poll released on the evening of Jan. 10 found that Sanders leads his Democratic rivals in the state. That is probably not good news for drugmakers.”
Bolstering The Biotech Set Up
Bolstering the biotech segment, a number of factors like new innovation, a spate of deals and easing worries about political risks helped strengthen this healthcare sub-sectors outlook, the Wall Street Journal reports.
Biotech stocks tend to provide the potential for outsize gains in response to research breakthroughs, but they are also vulnerable to steep losses since companies often have no income-generating products and developing treatments have no guarantee of receiving government approval.
While there are favorable fundamental factors looming for BBH and friends this year, the election will be a significant role in outcomes for biotech ETFs in 2020.
“The outcome of the 2020 race will do more than affect the broader economic climate,” according to Barron’s. “It will determine the leadership of the Food and Drug Administration, which has life-or-death power over the industry; it could lead to drug-price regulations; and, if it comes with a Democratic-controlled Congress—a big if, to be sure—it might even spur a move toward a full-scale overhaul of the health-care system.”
This article originally appeared on ETFTrends.com.