The Index Searching for a Cure: Nasdaq's Biotechnology Index
Each week a team member from Nasdaq Global Indexes provides insight into what is happening across a variety of investment theses. From index and ETF performance, to analysis of market trends, our experts will cover what’s hot in the world of passive investment strategies.
This week, Mark Marex, CFA, discusses the Nasdaq Biotechnology Index (NBI) and its performance:
- Launched in 1993, NBI is a modified market-cap weighted index tracking Nasdaq-listed biotechnology and pharmaceutical companies. The index is reconstituted annually in December, and is rebalanced quarterly. The top 5 constituents are capped at 8% each, while the rest are capped at 4%.
- As of September 29, 2020, the top 15 companies represented 57% of the index weight, out of approximately 200 total constituents. The biggest constituents include multiple companies that have been at the forefront of COVID-19 treatment and vaccine research.
- Gilead remains one of the top constituents of the index, with the 2nd biggest weighting. Its antiviral remdesivir has proven to be one of the most effective treatments of COVID-19 among the sickest patients. Gilead also recently announced an acquisition of Immunomedics, which has climbed the ranks to become the 10th biggest holding in the index, for approximately $20 Billion.
- Regeneron (4th) and Incyte (11th) are both in advanced stages of clinical trials for COVID treatments – Regeneron with monoclonal antibodies, and Incyte with cytokine storm-inhibitors.
- The top performers year-to-date are Immunomedics – driven by Gilead’s ~100% acquisition premium – and Moderna, which has been working with the National Institutes of Health on a leading vaccine candidate that is now in Phase 3 of clinical trials.
- YTD index performance (~12%) continues to be solid even after cooling off during the past few months, possibly due to more favorable summer headlines around lower risk of Covid-related shutdowns and healthcare system strains. Political headlines around legal challenges to the Affordable Care Act, as well as executive orders around lower drug pricing, likely also pressured the index lower.
- NBI is still meaningfully outperforming the S&P500 Index, as well as the Health Care Select Sector Index (IXV). IXV tracks health care service companies in the S&P500, and is heavily weighted towards firms outside of Biotech, such as Health Insurers, Retail Pharmacies, etc.
- For investors interested in the Nasdaq Biotech Index, there are numerous ETF tracking products in Europe, Israel, and Asia (Taiwan and South Korea), as well as in the U.S. with leveraged products from ProShares. Overall ETF AUM has grown by nearly 85% since a temporary low in March 2020, up to approximately $13.5 Billion. The most dominant product in the space is the iShares Nasdaq Biotechnology ETF (IBB), with nearly $9 Billion in AUM.
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