Investors Yank $255 Million From Biotech ETF

Updated on
  • SPDR S&P Biotech ETF saw $255 million outflow on Friday
  • Index of drugmakers has surged 19 percent over past 5 weeks

Once again, biotech is too hot to handle.

At least that’s the signal sent by whoever yanked $255 million from the SPDR S&P Biotech ETF at the end of last week, the biggest outflow in 16 months, according to data compiled by Bloomberg. The withdrawal came with a gauge of S&P 500 drugmakers sitting close to the highest level of 2016. Its 19 percent gain over the past five weeks outpaced all the benchmark index’s 67 industry groups.

Biotech companies have given investors reason to buy this earnings season, as reported results have spurred analysts to double their second-quarter growth forecasts for the industry. Still, it’s been a long road back for a group that dropped 35 percent to start 2016, and some restless investors are seizing the opportunity to collect gains.

“This type of profit-taking is consistent with a slight degree of tentativeness,” said Eric Balchunas, an ETF analyst with Bloomberg Intelligence. “People are risk-on, but not all the way. Even with how good earnings have been, we’re seeing tempered bullishness.”

The biotech ETF rose 1.2 percent at 12:43 p.m. in New York. It’s still down 10 percent on the year, while the S&P 500 has advanced 5.5 percent.

The withdrawal from the biotech tracker spurred an unusual phenomenon in the ETF: even as it rallied 1.2 percent on Friday, its market capitalization decreased by about $220 million. Inflows and gains in its underlying stocks sent the security’s value to $2.4 billion last week, the highest since November.

Normally, rallies in ETFs cause individual investors to plow more money into them, but biotechnology and oil have bucked that tendency, according to Balchunas. The SPDR S&P Biotech fund saw a single-day inflow of $249 million on Jan. 13 even as it was embroiled in a skid that wiped out more than a third of its value by mid-February.

“Going back in time, you can see that this ETF has flows going against the grain,” said Balchunas. “On occasion, an ETF, especially one that’s had a huge selloff, will see people come in and make flows inversely correlated to performance. It’s an extension of investor bottom-calling tendencies.”

The group has also gotten expensive, relative to others in the S&P 500. The biotech group trades at 5.6 times sales, fourth highest out of 67 industries and twice the index’s average.

(Updates with Wednesday’s trading in fifth paragraph.)
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