Stock Watch: Wrap Up For The Biotech Winter

In the year to date the NASDAQ Biotech Index (NBI) has fallen by nearly 14% compared to the less risky NYSE Arca Pharmaceutical Index’s (DRG’s) fall by nearly 7%. But early August brought a wave of optimism to the biotech sector with social media commentators lauding the NBI’s rise by 22% from its mid-June lows. Meanwhile, despite reasonable second-quarter earnings the DRG could barely manage a recovery into positive territory from the same time point.

With a summer of market-depressing news on inflation and the war in Ukraine, both indexes have retrenched but the NBI has fallen by 2% more than DRG, dousing the flames of a biotech recovery about a year from the previous highs of August 2021. Having managed biotech funds through similarly volatile periods I am reminded of the wilderness years between the summers of 2000 and 2011 so I was surprised by the straws clutched by those hoping for a rapid biotech stock renaissance. Institutional investors may be expected to always have some biotech exposure in their portfolios because they are measured against passive indexes that have a biotech component. A complete absence of biotech exposure raises a tracking error risk and the prospect of a quiet word from a compliance officer