Launching a biotech exchange-traded fund after a big selloff in the sector isn’t the best timing. But Brad Loncar, a popular biotech blogger and investor, hopes people will be intrigued by the very specific and very hot slice of the biotech sector his new ETF focuses on—cancer immunotherapies.
The Loncar Cancer Immunotherapy ETF (CNCR), which comes out on Wednesday, invests in companies that treat cancer by using drugs that modify the body’s immune response so it goes after solid tumors like melanoma or lung cancer, or that alter immune cells to combat blood malignancies.
To give investors access to this corner of the biotech world, the ETF holds 30 pharmaceutical and biotech companies (see below). They range from household names such as Pfizer and Bristol-Myers Squibb to names that many investors have never heard of, including Ziopharm Oncology and Bluebird Bio.
Whenever a niche ETF comes out, one way to check whether it’s really providing value is to see how much its holdings overlap with broader ETFs in its sector. CNCR stands up well here: Its holdings have about a 22 percent overlap with the $8 billion iShares Nasdaq Biotechnology ETF (IBB).
A lack of overlap is one reason the PureFunds ISE Cyber Security ETF (HACK) was a hugely successful niche ETF when it was created in late 2014. Investors weren’t getting the exposure HACK offered in the mainstream tech ETFs. Also, HACK had impeccable timing, launching two weeks before the big Sony hack.
CNCR’s timing isn’t as good, coming after a biotech selloff sparked by a Sept. 21 tweet from Hillary Clinton in which she promised to fight “price gouging.” Still, biotech remains the best-performing industry in the past 10 years, with a 300 percent return. That’s triple the return for the Standard & Poor’s 500-stock index.
CNCR gives each stock in its portfolio an equal weighting, which means smaller companies have the same impact on performance as do much larger ones. This tilt toward small caps increases volatility, so investors should expect a bit more jumpiness in CNCR than in IBB, where larger stocks will drive performance. CNCR charges investors 0.48 percent of assets in annual fees, the same fee charged by IBB.
Loncar, a biotech investor for more than eight years, said he finds biotech ETFs too broad and confusing. “A goal is to take biotechnology and break it down into one of its individual components—like cancer immunotherapy—that people are specifically interested in,” he said. “It’s a more straightforward and efficient way of looking at a sector.”
One could argue this isn’t technically the first cancer ETF. About a decade ago, HealthShares Cancer ETF(HHK) opened and liquidated in a little more than a year due to lack of interest. It may have been ahead of its time; 10 years ago, biotech ETFs had just $1.5 billion in assets. Today they have $14 billion.
Eric Balchunas is a senior exchange-traded-fund analyst with Bloomberg.
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