- Biotechnology
- Global Industry Analyst
Skip to main content
- Insights
- Capabilities
- Funds
- Sustainability
- About Us
- My Account
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
The biotechnology sector, especially SMID-cap biotech equities, suffered a dramatic drawdown in 2021. Investor sentiment toward the sector remains poor, but my outlook has become increasingly bullish as multiple headwinds facing biotech over the past year or so begin to abate and turn into potential tailwinds for 2022 and beyond. Encouragingly, the level of innovation across the industry has never been higher, in my view. I believe many biotech stocks may be nearing a bottom, even though the exact timing of (and catalyst for) a rebound remains unclear as of this writing.
From its peak in early February 2021 through mid-February 2022, the SMID-cap biotech-dominated XBI Index was down 49%, lagging both the broader health care sector and the overall US equity market by sizable margins. The underperformance was deeper and lasted longer than any prior drawdown since the inception of the XBI Index in 2006. Bigger-cap biotech stocks also underperformed over the same trailing 12-month span, although not as severely as their SMID-cap counterparts.
A slew of challenges weighed on the biotech industry last year, including regulatory uncertainty, drug pricing worries, excessive numbers of new IPOs, a relative dearth of M&A deals, and generally frothy equity valuations. More recently, the widespread expectation of rising interest rates has loomed large as the US Federal Reserve (Fed) prepares to begin tightening monetary policy amid higher inflation.
However, I believe most of these headwinds are abating and (in some cases) even transitioning to tailwinds for 2022 and beyond, underpinning my bullish outlook for the industry.
After a trying period over the past year or so, I believe now may be an opportune time for forward-thinking equity investors to take a fresh look at the biotech sector.
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
4 equity themes: Budding opportunities in small caps and more
Starkly different policy agendas from Biden and Trump are examined in terms of how they may affect the supply side of the US economy.
A turning point for US small caps
Myth busting US small caps: why now could be a compelling entry point for the asset class.
Equity Market Outlook
In our 2023 Equity Outlook, we offer a range of fundamental, factor, and sector insights as we look to 2023.
Will a “Goldilocks” economy be just right for equity markets?
We provide an outlook on the ongoing shift to new investment regime, and the market segments that we expect will most heavily influence global equity performance in the coming year.
What route is right in emerging markets investing?
How can investors find the most compelling opportunities within emerging market equities? Simon Henry and Dáire Dunne explain why they think targeting the economic development opportunity may provide a roadmap for success.
How a thematic approach can help harness change within portfolios
Multi-Asset Strategist Supriya Menon and Investment Director Andrew Sharp-Paul discuss why a thematic approach can help harness change within portfolios against a structurally different macroeconomic backdrop.
Is the long-awaited change in Japan’s fortunes finally materialising?
Portfolio Manager Dan Maguire explores why Japan may finally be exiting deflation and assesses the opportunities this structural change could create for small- and mid-cap equities.
Why investing in themes for EM equities may reap rewards
Portfolio Manager Dáire Dunne outlines why he is increasingly optimistic about the potential opportunities within select EM equity themes this year.
Small-cap value: Strong past, bright future?
While equity markets have had a challenging recent past, history teaches us that there may be several reasons to be optimistic about small-cap value.
Thematic investing focus: The transportation revolution has arrived
New technology and environmental concerns are creating a disruptive force in the transportation sector, leading to supply-chain investments and a host of new addressable markets.
URL References
Related Insights
Equity Market Outlook
Continue readingMultiple authors