One area you can see I've been transitioning into is
healthcare. I still don't buy the "technology is a safe haven" thesis but I have to respect that's where money flow is going.
Healthcare I can feel a bit more comfortable with because it's a traditional safe haven in times of recession. Not that we are in one, or ever will be in - as the U.S. is the only country on the planet that will avoid recession even though all the problems being caused in the world are due to our excess. We are just that good. ;)
One
subsector of
healthcare that I always say I fear buying individual stocks is biotechnology - aside from
Gilead Sciences (GLD) I can't recall ever owning an individual name in my life due to fear of FDA approval/denial ripping 40% of your capital in milliseconds. With that said, there are a few individual names I have been considering the past month only to watch them to levitate without me. So one approach are
ETF's - 3 of which I am looking at and will review in this post - all of which hold the larger type of names I prefer - if you think big cap
biotech is risky just imagine small cap
biotech. Now before going forward, let me say 1 word of caution is chasing into these
ETFs (and the stocks within them) at this point might be "late"; on the other hand we have seen once institutional money makes a decision to run into a sector, the herd mentality takes over and it can run far longer than one ever imagines. But once
'Fast Money' starts pumping a sector so heavily, I begin to get nervous about top ticking a move - however this is the type of sector we'd like to buy on a pullback.
Of the 3
ETFs -
First Trust Biotechnology (FBT), SPDR Biotech (XBI), Biotech HOLDRs (BBH) - none really have a ton of individual volume - the latter two average under 300K shares traded daily and the first under 40K shares, so they are somewhat illiquid in fact.
I always like to look at holdings of the
ETFs because the construction is so different and I don't like
ETFs which are heavily weighted to the top 2-4 holdings. So of these 3 we see that situation with
Biotech HOLDRs (BBH) - some might like it, some might not, I fall in the latter camp. Here are the
top holdings as of May 31- Genentech (DNA) 38.7%
- Gilead Sciences (GILD) 22.8%
- Affymetrix (AFFX) 17.4%
- Biogen (BIIB) 9.9%
Really there is no need to go further - these 4 names make up 88.8% of the holding. So if you are huge DNA/GILD fan you can essentially buy this
ETF and then get a few other
biotechs thrown in to offset some of the exposure but with 2 holdings making up 62% of the
ETF it really does not strike me as "diversification".
