Healthcare sector has proven itself to be one of the most resilient sectors of the US economy. Since healthcare cannot be outsourced and represents an expense that people usually cut on last during economic downturns, investing in healthcare stocks is a good way to recession-proof your portfolio. Moreover, the sector itself is comprised of many industries. Moreover, the aging population and advancement in technology that also affects the sector suggests that the sector will thrive in the years ahead as well.
There are many options when it comes to investing in the healthcare sector. For new and inexperienced investors, the best approach is to go with ETFs or Index funds, or stick to big pharmaceutical companies. Investors looking for dividends, should consider healthcare REITs. Then there is the biotech sector.
In the current bull run, biotech stocks have been among the star performers. Since March 2009, iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) has surged more than fourfold, versus S&P 500’s gain of 270%. The biotech industry had been very hot a couple of years ago, with biotech startups flooding the IPO market, which prompted analysts and even the former Fed chair Janet Yellen to warn investors about a bubble. However, since the middle of 2015, the biotech industry has went through a cool-down period, with the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) down by over 7% from its 2015 highs.
Despite the risks and pitfalls, the biotech industry is still a good investment. There are many companies with promising drugs in their pipelines and big companies with products already on the market. Navigating through individual stocks is tricky and biotech stocks are even more complicated since they also require more research into their drugs, either already available or still under development.
Therefore, a good idea is to look at where hedge funds are investing among biotech stocks. Hedge funds often employ people that are specialized in the biotech industry and research carefully each stock they invest in. There also are biotech-focused funds like Mark Lampert‘s Biotechnology Value Fund, or Anders Hove and Bong Koh’s VHCP Management, but we would like to do an overall overview of how hedge funds are “feeling” about the biotech industry.
To assess the hedge fund sentiment towards biotech stocks, we have looked at the data compiled from the last round of 13F filings. We track over 650 hedge funds as part of our small-cap strategy (read more details here) and aside from identifying stock picks that are part of the strategy, we can also see the popularity of thousands of other stocks among the hedge funds in our database.
When it comes to biotech stocks, we noticed a decline in interest among hedge funds. If at the end of 2015, the most popular biotech stock (Gilead Sciences, Inc. (NASDAQ:GILD)) ranked on the 19th spot, at the end of 2017, the most popular biotech stock was on the 44th spot. Nevertheless, we have identified the most popular biotech stocks among hedge funds and have selected those that saw the largest increase in popularity during the fourth quarter.