Investing In Biotechnology

Biotechnology stocks have been doing very well for the past several weeks.

There are different investment strategies for investing in biotechnology.  One may prefer to invest directly in the companies.  If that is your preference, you may want to look at Portola Pharma (PTLA), Puma Biotech (PBYI), and Blueprint Medicines (BPMC).  These companies all have very interesting research strategies and have received favorable analysists reviews. And they have been performing very well of late.

Another approach is to invest through mutual funds.  This approach offers the advantage of diversification.  And just like the individual stocks mentioned above, several biotechnology mutual funds have shown impressive returns.

The iShares Biotech ETF (IBB) tracks the Nasdaq Biotech Index.  For 2017, through the end of July, this ETF is up almost 19%.  That is well ahead of broader market benchmarks.

If diversification offered by mutual funds is important to you, there are several mutual funds that specialize in biotechnology and have shown very respectable results over relatively long periods of time.  For example, Fidelity Select Biotech (FBIOX), Franklin Biotechnology (FBDIX), and T. Rowe Price Health Sciences (PRHSX) are all very reputable mutual funds that have impressive track records.

However, always remember that investing in biotech stocks is not for the faint of heart.  Most of the value of a biotech company is not found on its financial statements.  Rather, it is in their clinical trial data. Companies that produce bad clinical trial results can often see their stocks lose half their value in a day. But when they are successful, they are often very successful.

In addition, it takes expertise and a lot of time to stay on top of clinical developments. That’s is why a good biotech manager can add a lot of value. 

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