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Our favorite biotech ETF has tripled the returns of the Dow since we first recommended it on Dec. 31, 2013. In that time, the exchange-traded fund (ETF) has gained 68.6% while the Dow has only gained 21.9%.
But it's not too late to invest in this ETF. We expect this pick to continue beating the market, which is why we are recommending it again today.
In fact, Money Morning Director of Technology & Venture Capital Research Michael A. Robinson expects the entire biotech sector, including this ETF, to outperform the Dow because of four catalysts.
Here's a look at each catalyst and why they will drive the biotech sector this year...
4 Catalysts That Will Drive the Biotech Industry in 2017
Catalyst No. 1: Drug Breakthroughs
When Robinson talks about drug breakthroughs, he means successful treatments for previously hard to treat diseases like cancer, Alzheimer's, and Parkinson's.
A good example of a breakthrough drug is being developed by a company that is included in the biotech ETF we recommend...
Alnylam Pharmaceuticals Inc.'s (Nasdaq: ALNY) new drug Givosiran is being pushed through the approval process quickly because it's showing promise in treating patients with a genetic disease called acute hepatic porphyria. The disease causes symptoms that range from chest pain and vomiting to seizers.
Genetic diseases and disorders have been difficult to treat. They are complicated and can't be cured, making this a perfect example of what Robinson considers a breakthrough drug.
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These breakthrough drugs have the ability to cause a stock to skyrocket as the companies enjoy first-mover advantage in selling a new type of drug.
Catalyst No. 2: Merger & Acquisitions
Last year, there was $148 billion worth of biotech/pharmaceutical merger and acquisition (M&A) deals completed worldwide, according to HBM Partners. Half of them were American companies. That's crucial because our ETF mainly focuses on American companies, with 90% of its holding being American companies.
M&A activity can be spurred by large companies looking to replace drugs coming off of patent by acquiring smaller companies with new drugs. That's done in order to keep sales and profits high. The best example of this is Johnson & Johnson's (NYSE: JNJ) acquisition of Actelion Ltd. (OTCMKTS: ALIOF).
"Adding Actelion to our already strong pharmaceutical business expands our portfolio with leading, differentiated in-market medicines and promising late-stage products," Johnson & Johnson CEO Alex Gorsky said.
That's a nice way of saying they want to acquire their drugs.
New drugs can take up to 10 years to develop and get to market, which is why larger companies buy the developments of smaller companies. But this long time frame for drug development is also spurring another biotech trend...
Catalyst No. 3: IPOs
New drugs cost billions to develop. According to Tufts Center for the Study of Drug Development, the average investment for a new treatment is $2.6 billion.
Many small companies rely on grants to fund the development and clinical trials necessary to bring a new treatment to market. But initial public offerings (IPOs) are another way companies can raise the necessary capital.
Six biotech and pharmaceutical companies have filed for IPOs worldwide this month (June) alone. That brings this year's global total to 15 IPOs, which is on pace to at least meet the 29 IPOs that occurred in 2016, according to BioSpace.
The fourth catalyst has to do with our increasingly aging population...
Catalyst No. 4: Demographics
Here's a little perspective on how fast the population is aging. According to the U.S. Census Bureau, there were 72,000 centenarians (100 years or older) in the United States in 2010. That number is expected to climb to 600,000 by 2050. That's a 700% increase in just four decades.
This aging of the population is going to provide a market for, and an incentive to develop, new treatments to help people live better as they age.
And the biotech ETF we recommend today is set to ride all of these catalysts to huge gains.
The fund selects only 30 stocks. By being highly selective in the stocks the fund holds, the ETF is able to maximize your profits. They pick only the most promising companies and developments to include in the ETF.
And the stocks in this ETF have enormous upside.
One of the holdings has a high target of 131.7% in the next year. The next fastest-growing stock has a high gain estimate of 169.2%. Meanwhile, the top stock in the fund is set to gain as much as 178.1% in the next 12 months...
High Growth-Focused Biotech ETF Best for Profits in 2017
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The ETF we recommend today is the First Trust Arca Biotechnology Index Fund (NYSE Arca: FBT). Since Robinson recommended the ETF back in December 2013, it has returned 68.6% while the Dow is only up 21.9% over the same time period.
The fund focuses mainly on mid-cap stocks that allow for huge growth potential. Of the 30 stocks the ETF holds, 19 are mid-cap (have a market capitalization between $2 billion and $10 billion). Some of them are also on the border of qualifying as small-cap stocks (companies with a market capitalization of under $2 billion).
FBT prides itself on focusing on biotech companies that are innovative and pioneering instead of tracking the broader biotech sector in order to maximize profits. And one of its holdings, Neurocrine Biosciences Inc. (Nasdaq: NBIX), is a stock we highly recommend. NBIX is expected to gain as much as 178.1% in the next 12 months, according to Wall Street analysts.
Lastly, the fund has one of the longest track records in the biotech industry. It was founded 10 years ago and is one of only four biotech ETFs to have a 10-year performance history.
Bottom Line: First Trust Arca Biotechnology Index Fund is one of the best biotech ETFs available. Robinson has been recommending it for over three years with market-beating success.
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