Biotech will continue to outperform the benchmark since the U.S. economy is currently in late-cycle expansion, says Bryn Talkington. She’s a Managing Partner at Requisite Capital Management.
Biotech is still trading at a discount
“Continue” because that subsector of healthcare has already done better than the broader market over the past four months. But Talkington is convinced the romance with biotech stocks is not over just yet.
In late-stage economic cycle, the playbook is to buy healthcare, staples, and utilities. But staples and utilities are trading at a premium to the S&P 500 at 19 and 17 times forward, versus healthcare at around 15.
Unlike the other two, biotech gives you exposure to growth as well, making it an even better pick for investing in late-cycle, she added.
“XBI” – the SPDR S&P Biotech ETF is currently up over 30% versus mid-June.
How to play the biotech space?
Another broadly talked-about exchange-traded fund to play the biotech space is “IBB” – the iShares Biotechnology ETF.
But Talkington prefers XBI over IBB for a more refined exposure to this space. On CNBC’s “Closing Bell: Overtime”, she said:
XBI is more of an equal-weight pure-play on biotech. Top five holdings make up around 5.0% only. So, when I want to get more of a small to mid-cap exposure, pure-play, I prefer XBI over IBB.
In comparison, the iShares Biotechnology ETF focuses more on the larger cap names. It is also not a “pure-play” and exposes investors, to a certain extent, to the pharmaceutical space as well.