Diversify Your Portfolio With Biotech Stocks
Smart Profits Report Issue #514
By Marc Lichtenfeld, Senior Analyst
Last week, I had the privilege of speaking at the 10th annual Investment U conference in St. Petersburg, Florida. During my presentation, I discussed how investors need to be aware that early-stage biotech stocks trade on emotion as much as fundamentals.
It’s one of the factors that has led the biotech sector to outperform the S&P 500 over the past decade. The numbers prove it. While the S&P 500 has returned a measly 19.8% cumulatively over the past 10 years - and that number roughly doubles if you include dividends - the Amex Biotechnology Index (AMEX: ^BTK) returned 336.3% over the same period. That’s some outperformance!
I talked about how investors should consider diversifying their portfolio to include biotech stocks - and the best ways to do that. And the benefit of doing so speak for themselves…
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Over the past 10 years, a $100,000 portfolio invested in the S&P 500 would now be worth about $141,000. However, if just 5% of that portfolio were allocated to biotech stocks, the portfolio would be worth over $156,000. That’s an extra $15,000 in returns from just 5% of the portfolio.
Here’s a quick n’ easy way to get some biotech exposure…
The Best Way To Buy Biotech Stocks
First of all, forget mutual funds. In particular, biotech sector mutual funds have not impressed me over the years, as they tend to be expensive and the performance has been lacking.
These days, ETFs are the dynamic new wave of funds - a subject that my colleague and technical wizard Jim Stanton focuses on here every other Monday in his new “Sector Watch” column - it’s good stuff.
If you want some simple biotech exposure via ETFs, the iShares Nasdaq Biotech Index (Amex:IBB) is an inexpensive way to give your portfolio some biotech diversification, since it tracks the performance of the stocks in the Nasdaq Biotechnology Index.
Two quick points to note, though:
- Biotech stocks tend to drop in the summer, so if you keep the sector on your radar, you may have an opportunity to get in at lower prices.��
- While biotech stocks can definitely pay off handsomely, understand that the sector has above average risk, so make sure it doesn’t make up too large a portion of your portfolio.
Before I go, check this out…
A “Spiritual” Approach To Wealth
While I was at the Investment U annual conference, I also got to see Karim Rahemtulla and Lee Lowell make excellent presentations on options. These guys know more about options than anyone I’ve ever met, so you’re in good hands reading their expertise here at Smart Profits Report. Of course, if you want to get specific recommendations from them, I encourage you to sign up for the Xcelerated Profits Report newsletter, or one of their trading services. If you’re interested in the latter, our VIP Services Team would be glad to give you the details. You can give them a call here: 888.570.9830 (inside the U.S.) or: 410.454.0498 (overseas).
It was also great to see Oxford Club Investment Director Alex Green (especially because he carried our golf foursome on his back en route to winning the tournament we had for presenters, Oxford Club staff, and conference attendees). I hadn’t caught up with him since he launched his new free e-letter, Spiritual Wealth and I wanted to tell him how much I enjoy it.
If your e-mail is anything like mine, it’s flooded with a mass of e-letters and newsletters on a regular basis. Sifting through them can be tough, but I always make time to read Spiritual Wealth. It takes a refreshingly different approach - which boils down to this: We all want to see our money grow and become (or stay) rich. But Spiritual Wealth shows you how to live richly. There’s a very big difference - and I encourage you to check it out. I think you’ll find it as enlightening and enjoyable as I do.
Talk to you again soon.
Marc
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3 Responses to “Diversify Your Portfolio With Biotech Stocks”
[...] So how do you find them? Stay tuned. On Thursday, I’ll give you more details on my selection process for finding stocks poised to double (and that’s a minimum expectation), taught to me by two of the greatest contrarian investors in recent decades.
[...] think we are at the very beginning of a wave of consolidation and a biotech stock boom. That’s because small-cap biotech names are so cheap right now. It will be tough for Big [...]
[...] think we are at the very beginning of a wave of consolidation and a biotech stock boom. That’s because small-cap biotech names are so cheap right now. It will be tough for Big Pharma [...]