Fueled in large part by the push to develop therapies and vaccines to defeat the coronavirus, biotechnology assets are hot this year. For example, the widely followed Nasdaq Biotechnology Index is up 10.21 percent year-to-date while the S&P 500 is still in the red.
It's clear the vaccine race is powering biotech stocks, but with some closer examination, investors can target a segment of the biotech universe that's gaining momentum as an avenue for defeating COVID-19. That being genomics, a theme accessible via several dedicated exchange traded funds, including the Global X Genomics & Biotechnology ETF (GNOM).
Genomics' applications in beating and treating viruses are practical because although viruses themselves are not living things, all viruses have a distinct set of genetic code. That is to say it's not a fluke that GNOM is up nearly 60 percent since the start of the second quarter.
GNOM member firms are “involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics, and biotechnology,” according to Global X.
That's relevant because various genomic subsciences can play pivotal roles in treating viruses because these illnesses have their own genomes.
Deeper Dive
Think about Moderna (MRNA) a company at the forefront of developing a coronavirus vaccine and one of this year's hottest stocks. The “RNA” refers to ribonucleic acid, a nucleic acid that acts as a transponder of sorts for controlling protein synthesis. In some viruses, RNA is more powerful than DNA. In either case, genomic sequencing – an industry represented in GNOM – is relevant in virus cure and treatment.
“Genome sequencing reveals the genetic makeup of organisms like humans, or even bacteria, by identifying the building blocks (nucleotides) that make up genetic material (DNA) and the order in which they appear,” said Global X in a recent note. “Sequencing can also be conducted on viral genomes like that of SARS-CoV-2. Viruses are non-living strands of RNA, so these sequences look at RNA rather than DNA.”
In fact, it was next generation sequencing (NGS) developed by GNOM components such as Illumina (ILMN) and Qiagen (QGEN) that played pivotal roles in discerning that COVID-19 wasn't a strong version of influenza, but rather a novel pathogen unto itself. Those stocks combine for about 7.50% of GNOM's roster.
“Researchers employed Illumina and Nanopore NGS to read SARS-CoV-2’s genome and computational genomic applications like QIAGEN’s CLC software to map and sequence it,” notes Global X. “From this, they were able to determine that the virus was a novel pathogen. Just 12 days after the first public announcement of a pneumonia outbreak, they published its genome.”
Just Getting Started
From an investment standpoint, there are some tricky issues surrounding individual stocks with significant leverage to the COVID-19 competition or funds heavy on those names. Like any other competition, there will be winners and losers. Then there's the time horizon, meaning markets' enthusiasm for coronavirus plays may not last as long as it takes these companies to find success in the arena.
That would be potentially limiting for stock or ETF that has all its eggs in the COVID-19 vaccine basket. Fortunately, GNOM is a longer book than that, which is to say the fund offers investors plenty of utility even when the coronavirus becomes a thing of the past.
As just one point to prove that assertion, the global DNA sequencing market is in the midst of an expansion estimated to be happening at a compound annual growth rate (CAGR) of 19 percent that will value the industry at north of $25 billion by 2025.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
Read Todd's Bio