Are you investing in Science and Innovation, or just along for the ride?
When making an investment, is it important to fund the companies with your investment so they can create value? For example, Biotech and Healthcare, as an investor, would you prefer to fund Science and Innovation as well as take part in the potential upside of the stock price, or simply try to take part in the potential upside?
If you prefer the former, it's important to know that an ETF doesn't put a dime on the balance sheets of the underlying companies. An ETF doesn't own the underlying shares, nor can it take part in private offerings. Therefore, by its nature, an ETF in the Biotech category cannot fund science and innovation, but it can take part in price fluctuations.
Let's take a look at what happens when someone takes you along for the ride as opposed to understanding what they own, why they own it, and the science as well as investing.
To demonstrate, it might be hard to see, but the "Red" line in the chart below is the performance of a high profile Biotech ETF that "invests" in the genomics revolution!
Nice return if you promptly invested post-Covid, but not so good if you piled in at the top (which unfortunately a lot did). Probably seemed like a fun ride until you peered over the top, and afterward, not a single new drug or scientific innovation was funded along the way with your investment!
In contrast, the "White" line in the chart is an Actively Managed Biotech Mutual Fund that owned 16 of the last 30 biotech stocks that were acquired for >$250M. 3 of these M&A deals have taken place this year (2023) and the fund owned all 3. This may not be direct funding of science and innovation, but when you know what you own and can see that a company with a robust pipeline is trading below the cash on its balance sheet, it's probably a pretty good target for a takeover.
Furthermore, the "White" line fund has the ability to invest 15% in private investments as well as other private placements and offerings on top of this. It is this capability that allows for the direct funding of Science and Innovation that you won't get with an ETF.
As a side note, it's hard to tell because of scale in the above chart, but the total return of the "Red" line ETF performance from November 29th, 2019 to today (January 17th, 2023) is +0.87%. The total return of the "White" line Actively Managed Biotech Mutual Fund over the same time period is +72.57%. At least a ride on this "Red" line got you back to where you started!
Understanding investing is one thing, but understanding the science is another.
The good news is you don't need to know both, but if you're a Financial Advisor and want to hear from someone that does, the Portfolio Manager for the "White" line fund holds monthly calls on the 3rd Thursday of the month.
The calls last 15 minutes and the Portfolio Manager discusses 3 "interesting" Biotech and Healthcare stocks. They may not all be ones he likes but it does provide a view of the thought process that goes into investing in science and innovation.
If you’re a Financial Advisor and you'd like to join the call - Register Here
