Connect with us

Stocks

Biotech Bonanza: 2021 Outlook In A Post-Pandemic Year

CloseCloseCloseCloseREGISTER YOUR SPOT NOWEnter your details below to get instant access to [enter lead magnet name here]E-mailGet Instant Access NowStart NowWe process your personal data as stated in our Privacy Policy. You may withdraw your consent…

Published

on

REGISTER YOUR SPOT NOW

Enter your details below to get instant access to [enter lead magnet name here]

We process your personal data as stated in our Privacy Policy. You may withdraw your consent at any time by clicking the unsubscribe link at the bottom of any of our emails.

Close

As 2020 has slipped into the rear-view mirror, it will not be a misnomer to refer to it as the year of the Biotechs.

The biotech industry was on a mission to return the pandemic ravaged world to normalcy by delivering a cure. The industry has succeeded by already delivering two vaccines for COVID-19 and treatments, with more to come as the new year begins, putting the world on a path to recovery. The monumental impact of the biopharma effort cannot be overstated. Lives will be saved, livelihoods restored, and economies rebuilt.

The Nasdaq Biotechnology Index (IBB) also achieved a major milestone during the year as it finally made a new high - five years after the one recorded in July 2015. It was a pivotal moment whose breakout gains will be achieved in 2021 and beyond.

In the 2020 outlook, we had expected the Nasdaq Biotechnology Index to be up +10% and raised it to +20% in the mid-year update. The premier Biotechnology Index rose +26% in 2020.

The year presented challenges that were unprecedented in modern history. So predicting the market was a game of luck! You could be right one month and be completely wrong the next.

In determining total returns, equally important as security selection are the times when one is invested and the investing behavior based on the investment approach. The approach served us well as the various Prudent model portfolios outperformed their benchmarks.

2020 Biotech, Healthcare and Smallcap Performanc

Prudentbiotech.com ~ 2020 Performance

Vaccines - It Doesn't Get Bigger For Biotechs...

A compelling product in a captive market worth billions of dollars is an incredible opportunity for any company. The world has to be vaccinated fast to emerge from this slow-motion tragedy. A tragedy that hasn't seen its worst moments yet, as the fatality rate will likely peak in February if the pandemic follows the trajectory of the flu season.

AllianceBernstein (AB), a financial services firm, has estimated the market to be nearly $40 billion in 2021. And the first-mover advantage will obviously be tremendous in the first-year. Premium pricing will exist in the supply agreements during the first half due to scarcity and then trend down rapidly in the second half as more lower-cost vaccines ramp up production. As demand ebbs in developed countries once first-year supplies are secured, lesser-developed countries will be served at lower pricing. The following year 2022 would likely need a new vaccine, just like the flu one, thus creating a smaller but recurring market opportunity with a lot of innovation potential. Note that there is no data yet on the longevity period for the vaccine and thus how frequently it would be needed - every year, every 2 years, etc

In 9-months the biotech industry delivered 2 vaccines approved under an Emergency Use Authorization (EUA). The first 2 vaccines, BioNTech (BNTX) with partner Pfizer (PFE) and Moderna (MRNA), raced to the finish line using a novel messenger RNA (mRNA) approach. Untested and unproven clinically against any disease thus far, this highly-suitable vaccine development approach has delivered for the world

Is the high efficacy rate the result of the mRNA approach or the ease of targeting the spike protein?

It's a highly interesting question whose preliminary answers will be available this month in January.

It has been truly amazing to record a 94% to 95% efficacy or effectiveness rate in early trial results for mRNA vaccines. This sets a high bar for other vaccines using more traditional approaches. Nearly all of them target the spike protein on the COVID-19 virus, just like the mRNA vaccines, and thus should have good effectiveness, well north of 50%. FDA has set a 50% efficacy benchmark for EUA approval.

RNA vaccines have already demonstrated a premium position based on up to 95% efficacy in early Phase 3 trial results. This would suggest that similar efforts using the mRNA approach, particularly from companies like CureVac (CVAC), can likely lead to similar results. Although, it must be observed that simply working on an RNA vaccine doesn't mean that the same 90+% efficacy level will be achieved.

Oxford University and AstraZeneca's (AZN) product can quickly become a global vaccine if results are around the 70% level. The world's largest vaccine manufacturer, The Serum Institute of India, will be one of the biggest producers of the Oxford/AstraZeneca vaccine. The AstraZeneca vaccine trials, which have been plagued by befuddling issues and amateurish data handling, had an average efficacy rate of around 70%, but unfortunately, the results are not considered reliable and robust. The genetically engineered viral vector in the vaccine, developed by Oxford University, is deemed to be the most promising for the world due to its low-cost and the effectiveness of a similar approach against Ebola. The Oxford/AstraZeneca trial continues and more reliable results are expected this month in January. Novavax (NVAX) is expected to report trial results in late January, and one of its manufacturing partners is The Serum Institute. Finally, Johnson & Johnson (JNJ) is expected to roll out its vaccine results in late January.

These three trial results in January will provide efficacy data that will answer the question if mRNA vaccines can also have higher efficacy as a major advantage besides rapid development.

Internationally, Russia has a traditional viral-vector vaccine, Sputnik V, which it claims has 92% efficacy, but it doesn't yet have reliable public data. Sinovac, a Chinese firm, is also using the tested traditional approach of an inactive viral particle in the vaccine and released its early data from the Brazilian trials showed a 78% efficacy rate, though details remain missing. Its peer Sinopharm also has vaccines with the same traditional approach in late-stage trials, with a 79% efficacy rate, but again details are sketchy and conflicting. Both companies had vaccinated over a million people in China under emergency use, prior to Phase 3 results.

...But The Market Opportunity May Not Exist For All Players in 2021

Pfizer/BioNTech and Moderna are anticipated to be the largest beneficiaries of vaccine sales in 2021 due to their first-mover status with compelling and most likely best-in-class products. They will be followed by AstraZeneca, Novavax, and Johnson & Johnson, as per the AB research report. There will be much smaller pickings if at all for others, at least in the US.

Prudentbiotech.com ~ vACCINE

A number of companies can receive FDA approval if the product achieves higher than 50% efficacy, but run the risk of not being able to scale up supplies in 2020. Most of the prominent beneficiaries of the market opportunity have received significant US government funding or have the financial wherewithal to secure raw materials, scale-up manufacturing, or enter into manufacturing alliances to ramp-up production. That is not true for all the vaccine developers, and most of them may get sidelined, even with approved products, from participating in the 2021 opportunity.

One would also believe that as more data becomes available, FDA can reconsider guidelines set during an emergency authorization, and set a higher vaccine efficacy rate for the future, thus potentially diminishing the market opportunity for relatively lower efficacy products.

- Macro Environment Supportive Of Risk-Taking

Biotechs are considered a speculative group, and such groups do particularly well in a prolonged low-interest-rate environment when risk-taking appetite is strong due to (a) low borrowing costs, and (b) low returns on interest-rate instruments. Smallcaps are also beneficiaries of such a market climate.

Biotech funding continues to soar at the venture and public level, and over one-third of the IPOs on the US markets in 2020 were of biotech companies.

We had presented the charts below in early 2020, illustrating the potential correlation between sustained low-interest-rates or low-cost-money and biotech valuations. The best period for biotechs during the past decade (2010-2019) was the ~6-year period from 2010 to 2015 when the Nasdaq Biotech Index soared nearly 400%. This was a period of a very low and stable interest rate policy.

Prudentbiotech.com ~ Nasdaq Biotech

The biotech indexes have broken out again after a prolonged consolidation. Even though there may not be a perfect causal relationship between interest rates and biotech performance, at the very least, the correlation underscores the existence of a favorable macro environment for biotechs that should continue in the years ahead, and sustain a longer-term, multi-year uptrend.

- Scientific Advances Keep Coming

The rapid development of RNA vaccines has underscored the advancing frontier of science where technology and discovery are advancing at a relentless pace, generating new treatments in a shorter time.

RNAi is now a highly prized and promising approach for drug and vaccine development, after decades of false-and-slow-starts. The space has strong momentum as it has captivated the world with Moderna and BioNTech's rapid COVID-19 vaccine development, and illustrates the rapidly advancing frontiers of drug development. RNAi medicines work upstream, almost at the pre-genetic level, then most therapeutics, and thus the gene silencing approach possesses transformational potential.

mRNA is aptly suited for vaccines. It is not hard to understand why, if one imagines working upstream at a genetic level to build defenses against antigens. Moderna and BioNTech were already focused on vaccines for various diseases including cancer vaccines, as opposed to therapeutics or drug treatments. As the speed of development and efficacy rate of COVID-19 mRNA vaccines has shown, this is a breakthrough platform and no longer a concept.

Alnylam Pharmaceuticals (ALNY) has led the charge in RNAi therapeutics when its drug Onpattro was approved in 2019, the first RNAi drug to receive the FDA blessing. It now has a growing stable of approved RNAi drugs, including the cholesterol drug Inclisiran (renamed Leqvio) which is now owned by Novartis. Arrowhead Pharmaceuticals (ARWR) has a number of meaningful programs with data readouts this year. A few others in this growing field include Dicerna (DRNA), Translate Bio (TBIO), and Arcturus Therapeutics (ARCT).

Prudentbiotech.com ~ Strong Man

Time Is The Biggest Enemy

Gene editing continues to transform medicine not only for genetics-based diseases but also in search of new drug discoveries for old maladies. Clinical trials of genome editing agents including CRISPR editors and zinc finger nucleases continue to grow. The list of players is ever-expanding from Crispr Therapeutics (CRSP), which has a partnership with Vertex Pharmaceuticals (VRTX), Editas Medicine (EDIT), and Intellia Therapeutics (NTLA), being a few. A number of smaller public and private companies are using variants of CRISPR gene-editing to make the approach more robust, precise, and less risky. Last month, Eli Lilly acquired Prevail Therapeutics (PRVL), a gene therapy player in the neurology area.


CAR-T cell therapies in oncology are advancing rapidly and also broadening out to include more clinical trials of allogeneic products, which are off-the-shelf cells as opposed to autologous products that are unique to the patient, that reduce manufacturing challenges and significantly reduce costs. There are more than 600 clinical trials ongoing in CAR-T cell therapies. Management consulting firm McKinsey forecasts CAR T-cell therapies to go from less than $1 billion in global revenues a year ago to over $10 billion in 2024.


Oncology Remains The Leading Investing Area and Neurology The Most Baffling

The fight for a cure for cancer continues with Oncology receiving the most funding in private and public financings, and the most M&A related deal activity, by far. Neurological diseases and rare diseases are also high on the list of attracting investing dollars.

Prudent Biotech.com ~ Cell

Advances on major neurological diseases, like Alzheimer's and Parkinson's, continue to be difficult and rigorous, and it's an area where progress appears to be defined more by learning what doesn't work. The beta-amyloid hypothesis is a perfect illustration. The theory postulates that the protein creates plaques in the brain, causing Alzheimer's, and thus its reduction can prevent or rollback the disease. After decades and billions of dollars spent in research, each outcome has just proven this hypothesis to be wrong, and some large players have exited from this approach. Biogen (BIIB) has continued to go down this path and may receive key approval in January for its drug Aducanumab to treat mild-Alzheimer's. If granted, it will be the first approved treatment for Alzheimer's disease and a material valuation enhancing event for biotechs.

- Strengthening M&A Activity

Biotechs are amongst the most active M&A industry groups. That's the nature of the industry - positive outcomes in mid-and-late-stage trials, particularly in oncology, can elicit strong interest from pharmaceuticals.

Prudentbiotech.com ~ Graph

As the pandemic struck, the M&A activity ebbed rapidly and in the first half of 2020 less than $10 billion of transactions were done. This changed in the second half as nearly $100 billion of deals were recorded.

Prudentbiotech.com ~ Biotech M&A 2020

A significantly more normalized environment in 2021, as the pandemic's grip weakens, low-cost money, and declining returns on internal R&D for big pharmaceuticals, are going to be highly supportive of M&A activity.

Regulatory Environment

The drug pricing issue, dormant for now, will re-emerge later in 2021 as the pandemic subsides. It may come to the forefront briefly this month as the companies put through the annual drug price increases in January. So far this month, prices for nearly 600 drugs have been raised by an average of 4.2%. This compares to January price increases for 639 drugs by an average of 6% in 2020.

There have been efforts in the waning days of the Trump Presidency to introduce new Executive Orders (EO) to reset prices. In late November, the administration had announced a policy to base the Medicare prices for 50 drugs on the lowest price paid by a group of developed nations. Another policy was aimed at eliminating drug rebates paid out to middlemen by drug companies. These policies are vulnerable to legal challenges from the industry, which is against any type of price control and indexing. It is unclear how the incoming Biden administration will deal with the EOs.

PrudentBiotech.com ~ Covid 19 medicine 2020

It can't be denied that healthcare costs are the number one public interest issue. However, the issue enjoys bipartisan support only in principle, and the paths to address healthcare costs being proposed by the two parties are poles apart. With Democrats now holding a thin majority in Congress, sweeping changes may not be possible. One would believe there will be meaningful moves, but incremental ones. Thus, the needle may not move meaningfully at least during 2021, and the impact on the healthcare industry will be restrained.

However, the threat of greater regulation is an overarching risk with the potential to upend the industry dynamics eventually in the years ahead.

Outlook

A young bull market operating in a market environment of benign monetary policy and trillions of fiscal stimulus will continue to attract money to the higher-risk and more volatile segments of the market like biotechs.

Fundamentally, biotechs continue to be well-positioned based on promising scientific advances. Technically, a breakout after a 5-year, long-term consolidation augurs well for biotechs and promises sustained gains over 2021. We anticipate the Nasdaq Biotech Index to record another 20+% return in 2021. The return expectation is simply a general framework and will need to be adjusted if market conditions deviate significantly from current expectations.

Prudentbiotech.com ~ Stock Market, Shutterstock

There will be meaningful opportunities to materially outperform the indexes. But there will be times when reducing the exposure may be best, based on the investment approach. Biotechs being a high risk-reward industry, the risk management part is quite important to build returns over time. Investors need to pursue a concrete investment strategy in biotechs, preferring a portfolio approach by investing in a basket of promising biotech companies that can assist in managing risk and overcoming mistakes that do happen.

A couple of key events to watch for in January would be the J.P. Morgan Healthcare Conference from January 11 to 14, which helps healthcare valuations, and an FDA decision on Aducanumab.

A few promising biotech companies, some of which may be now or in the past part of Prudent Healthcare or Prudent Biotech model portfolios, include Moderna, Allakos (ALLK), Denali Therapeutics (DNLI), Arrowhead Pharmaceuticals (ARWR), Fate Therapeutics (FATE), Crispr Therapeutics, Rocket Pharmaceuticals (RCKT), TG Therapeutics (TGTX), Arvinas (ARVN), Kodiak Sciences (KOD), BridgeBio Pharma (BBIO), Five Prime Therapeutics (FPRX), Beam Therapeutics (BEAM), Intellia Therapeutics (NTLA), Precigen (PGEN), Scholar Rock (SRRK), Trillium Therapeutics (TRIL), and Editas (EDIT).

Industry exposure can also be acquired through ETFs like IBB, which tracks the Nasdaq Biotech Index, and XBI which tracks the S&P Biotechnology Select Index. Biotech investing is volatile and high-risk. Investors should pursue a concrete investment strategy preferring a portfolio approach by investing in a basket of promising companies that can assist in managing risk and overcoming mistakes.


The article was published on Seeking Alpha.

The post Biotech Bonanza: 2021 Outlook In A Post-Pandemic Year appeared first on Prudent Biotech.

Read More

Continue Reading

Stocks

Bitcoin Back Below $30,000 After A Record 8 Weeks In The Red

Bitcoin decoupled from equity markets to the downside on Monday after ending last week as the eighth consecutive weekly loss.

Published

on

By

Bitcoin decoupled from equity markets to the downside on Monday after ending last week as the eighth consecutive weekly loss.

Bitcoin has failed to hold the $30,000 level on Monday after scoring its eighth consecutive week in the red for the first time ever.

During these eight weeks, which began in late March and ended on Sunday, bitcoin has lost over 35% of its U.S. dollar value according to TradingView data. Before the beginning of the losing streak, BTC was trading at around $46,800.

Bitcoin has scored losses for eight consecutive weeks for the first time in its history and it is starting the ninth with yet another red candle. Image source: TradingView.

Bitcoin is changing hands slightly below $30,000 at the time of writing. The peer-to-peer currency climbed as high as $30,600 earlier on Monday to trade at around $29,400 as the trading in equity markets nears its end in New York.

While bitcoin turns south, major U.S. stock indices have been in the green. The Nasdaq, which is said to be highly correlated with bitcoin, decoupled from the digital money along with the S&P 500 to denote modest gains near market close on Monday, per TradingView data.

While bitcoin, Nasdaq and S&P 500 were trading in tandem for some time on Monday, the P2P currency saw a sharp sell-off decouple it from the two indices and take it to a more than 3% loss for the day. Image source: TradingView.

A Tough Year For Bitcoin

Despite making two new all-time highs in 2021, bitcoin already erased nearly all of those gains in 2022.

Bitcoin’s choppy trading year so far can be partly attributed to a broader sentiment of economic uncertainty as the Federal Reserve tightens the U.S. economy, withdrawing liquidity from the market after almost two years of quantitative easing.

The central bank has already raised its basic interest rates two times this year, the last of which was double the magnitude of the previous one and represented the largest hike in two decades: While the Fed increased interest rates by 0.25% in March, it raised them by 0.50% earlier this month.

Image source: Federal Reserve Economic Data (FRED).

When the Fed raises or lowers interest rates through its Federal Open Markets Committee (FOMC), what it is actually doing is setting a target range. The graph above depicts the lower and upper bounds of that target range in red and blue, respectively.

While the U.S. central bank system sets the target, it cannot mandate that commercial banks use it — rather, it serves as a recommendation. Therefore, what banks end up using for lending and borrowing excess cash between them overnight is called the effective rate. This is shown by the green line in the graph above.

The Fed previously hiked interest rates consistently from 2016 to 2019, until plunging it near zero in the aftermath of the COVID-19 pandemic outbreak, as noted in the graph.

Bitcoin’s higher sensitivity to liquidity and therefore interest rates can be explained by a greater participation of institutional investors in the market, whose allocations are based on the availability of capital and broader economic conditions, Morgan Stanley reportedly said.

Therefore, while Bitcoin was able to sustain a bull market in the midst of the Fed increasing interest rates in 2017, raising nearly 2,000% from January to December that year, the odds aren’t on the side of the bulls this year.

For two weeks, bitcoin has now closed below a level of weekly support it formed over a year ago and had respected since, indicating it might be turning into a zone of resistance. Image source: TradingView.

Read More

Continue Reading

Stocks

Here’s What Will Be Open And Closed on Memorial Day

Rite Aid, Best Buy and Pizza Hut will be open. Not so much with the Stock Market, though.

Published

on

Rite Aid, Best Buy and Pizza Hut will be open. Not so much with the Stock Market, though.

Just in case you forgot to remember, Memorial Day will take place on Monday, May 30th.

Memorial Day is one of the most American of all holidays, second only to the Fourth of July. 

The holiday was created to honor people who served in the United States military. 

The first Memorial Day took place in 1868, though it is a holiday with a surprisingly murky history. 

The U.S. Department of Veterans' Affairs says that 25 different cities and towns have claimed to have invented the holiday. 

Still, Memorial Day weekend has long served as the unofficial kick off of summer, with friends gather in backyards and public parks to hold BBQs and flout open container laws.

As with many federal holidays, it can be a bit unclear what business and government agencies will be open. 

Maybe you’re the type that always needs to buy some last minute potato dip at the grocery store, or if you’d prefer to go to a restaurant rather than deal with all that sunshine.

Either way, we’ve put together a list of what definitely won’t be open on Memorial Day, and what likely will be.

There is also the caveat that some chain restaurants and stores give their franchises the flexibility to set their own hours and days of operation.

What Will Be Open On Memorial Day?

Public Parks And Beaches

It just wouldn’t be Memorial Day without people grilling in the park and on the beach. 

While some public parks closed down during the pandemic, that is thankfully behind us. 

Some parks might close on the early side, but you should be all set for an afternoon picnic.

Movie Theaters

Memorial Day is the unofficial start of summer, as well as the unofficial start of summer movie season. If you’re curious about checking out “Top Gun: Maverick,” most theaters will be open.

Subways and Buses

While a lot of government employees get the day off, subway and buses will continue to run, though in reduced capacity in some cities. 

Rite Aid, CVS and Walgreens

Chain drug stores seemingly never take the day off, just in case you really need to buy some shampoo from Rite Aid  (RAD) - Get Rite Aid Corporation Report, CVS  (CVS) - Get CVS Health Corporation Report or Walgreens  (WBA) - Get Walgreens Boots Alliance Inc Report

Kohl’s, Lowe’s, Big Lots, Sam’s Club, Walmart, Target and Home Depot

All the major big box stores will be open on Memorial Day, though some locations might close early.

Shopping Malls

Nearly all shopping malls will be open on Memorial Day, and many of them will be having sales.

Trader Joe’s, Publix, Walmart, Wegmans 

Most chain grocery stores like Walmart  (WMT) - Get Walmart Inc. Report and Trader Joe's will be open, though some might close on the early side. 

Barnes and Noble

Need to find a bathroom? Most Barnes and Noble  (BKS) - Get Barnes & Noble, Inc. Report book stores will be open on Memorial Day weekend.

Starbucks and Dunkin

Do you need coffee before the day drinking commences? Both Starbuck  (SBUX) - Get Starbucks Corporation Report and Dunkin  (DNKN) - Get Dunkin' Brands Group, Inc. Report will have you covered.

The Apple Store

If you want to spend your day off at the Apple Store  (APPL) , that is an option available to you, as most locations will be open that day.

Fast Food

Not in the mood to make your own hamburger? More of a taco kind of person? 

Take heart: all the major fast food chains, including McDonald’s  (MCD) - Get McDonald's Corporation Report, Wendy’s  (WEN) - Get Wendy's Company Report, Taco Bell  (YUM) - Get Yum! Brands, Inc. Report, Subway, Chipotle  (CMG) - Get Chipotle Mexican Grill, Inc. Report and Pizza Hut will all be open. 

Chain Restaurants

Are you a fan of air-conditioning and having other people cook for you? 

Well as an American, you are entitled to go eat at Ruth’s Chris Steakhouse, The Cheesecake Factory  (CAKE) - Get Cheesecake Factory Incorporated Report, Bonefish Grill, Applebee's, Chili's or Olive Garden  (DRI) - Get Darden Restaurants, Inc. Report on Memorial Day.

Most chain restaurants will be open for takeout, delivery and dining in. Many will offer discounts to service members and veterans. 

Total Wine

If it’s your job to bring a six-pack to the BBQ, Total Wine will be open on Memorial Day, as will the majority of locally-owned liquor stores.

What Will Be Closed On Memorial Day?

The Federal Government

Memorial Day is a federal holiday, so federal courts and government offices will be closed. 

The State Government

Most non-essential state government offices will be closed, including the Post Office and most courthouses. 

Banks

Some local banks may choose to remain open for part of the day. But generally, national banks such as Bank of America  (BAC) - Get Bank of America Corp Report, Capital One  (COF) - Get Capital One Financial Corporation Report, Chase  (CCF) - Get Chase Corporation Report and PNC  (PNC) - Get PNC Financial Services Group, Inc. Report will be closed.

The Stock Market

The New York Stock Exchange, Dow Jones, NASDAQ will all be closed on Memorial Day. Go eat some hotdogs, day traders.

Schools

(Alice Cooper Voice) School’s is out for the summer! 

Though in some cities, schools may be open until June, especially if it is trying to make up for time lost because of covid-19. 

But even then, students will have Memorial Day off.

The Department of Motor Vehicles

The DMV is a state agency, and not a federal one. They are generally closed on Memorial Day in most cities.

Read More

Continue Reading

Spread & Containment

Top Gas ETFs to Buy in 2022 with Soaring Gas Prices

To grab your piece of the rising energy costs, below are the top gas ETFs to buy in 2022. Let’s get started.
The post Top Gas ETFs to Buy in 2022 with…

Published

on

All anyone wants to talk about anymore is the soaring price of gasoline. After all, the cost to fill your tank has never been higher. With industry profits piling up, get your share with the best gas ETFs to buy before the second half (2H) of 2022.

First, the pandemic severely strained the industry as demand fell off from global lockdowns. As a result, over 100 oil and gas companies went out of business.

Then, as the economy reopened and demand started catching up, Russia’s invasion of Ukraine stoked a fire under an already strained market. So, demand is outpacing supply as nations look elsewhere to fill the supply gap left by Russia’s massive presence in the commodity market.

Nonetheless, gasoline is essential to keep the economy running smoothly. You need gas for fuel to get to work and back. Not to mention, businesses rely on gas for transporting goods, which influences prices. To grab your piece of the rising energy costs, below are the top gas ETFs to buy in 2H of 2022.

What Are the Best Gas ETFs to Buy Right Now?

The top gas ETFs to buy are outperforming the market right now as soaring energy costs boost profits. For example, Natural Gas Futures (NG1) are up over 120% YTD and almost 200% over the past year.

Meanwhile, all major indexes are down significantly this year, with the Nasdaq 100 Index (NDX) slipping almost 30% YTD. On top of this, researchers at J.P. Morgan predict gas prices could remain elevated “even as far back as 2024” as supply disruptions will be hard to overcome.

No. 3 Barclays iPath Series B Bloomberg Natural Gas Subindex (NYSE: GAZ)

  • YTD Return: 124%
  • Expense Ratio: 0.45%

Although the Natural Gas Subindex is set up as an Exchange Traded Note (ETN), it can help you gain exposure to the surging gas market. An ETN differs from an ETF in that the fund consists of unsecured debt notes rather than holding a group of stocks.

The GAZ ETN seeks to replicate the returns of the Bloomberg Natural Gas Subindex by investing in futures contracts. That said, the ETN does not pay a dividend. Therefore, GAZ is best as a short-term tool.

Since the ETN is not tied to any companies, only futures, it can carry additional risks. For example, investors are left with little or nothing if the issuer defaults. In comparison, ETFs hold several companies, helping to diversify and spread risk.

At the same time, the ETN moves alongside the price of natural gas contacts. So, if you are looking for direct exposure to gas prices, the GAZ ETN may be for you.

Keep reading for more on gas ETFs to buy.

No. 2 United States Natural Gas Fund (NYSE: UNG)

  • YTD Return: 128%
  • Expense Ratio: 1.11%

The United States Natural Gas Fund is another way investors can invest in natural gas prices without physically trading futures. For one thing, UNG is a commodity pool. Or in other words, it pools investor money to invest in futures, swaps and forward contracts.

The fund aims to give investors access to daily changes in natural gas deliveries at the Henry Hub, a distribution center. As a result, the daily changes resemble changes in natural gas prices.

However, since management is consistently active, it will cost more to invest. Though the higher expense is not slowing UNGs momentum, up close to 130% YTD. Likewise, UNG is more geared for short-term trading as it holds near-month contracts.

No. 1 United States 12 Month Natural Gas Fund (NYSE: UNL)

  • YTD Return: 113%
  • Expense Ratio: 0.90%

Similarly, the United States 12 Month Natural Gas Fund is a commodity pool targeting the price of natural gas. But, UNL differs in that it holds futures contracts for the nearest 12 months.

In other words, UNL buffers itself from short-term movements. As a result, investors can gain exposure to changes in natural gas prices with less risk than short-term contracts.

If you wish to capture your piece of the soaring energy prices but want less risk of contango (higher spot price), UNL may be a better choice.

Best Leveraged Gas ETFs to Buy

To maximize your returns, you can opt for a leveraged ETF to multiply the changes in an underlying index. For example, the ProShares Ultra Bloomberg Natural Gas ETF (NYSE: BOIL) targets to return 2X the daily performance of a natural gas index.

As a result, investors can earn double the daily returns of natural gas changes. With this in mind, the BOIL ETF is up 322% in 2022 alone.

However, there is a significant risk of investing in leveraged ETFs. Though you can earn double the returns, you can also double your losses. Investing in these funds is only recommended if you are comfortable with the significant fluctuations.

Best Inverse (Short) Gas ETFs to Buy

For those that think gas prices will ease soon, finding an inverse gas ETF to buy in 2022 may be for you. Or, if you have earned a pretty penny on gas and oil stocks already, you may want to protect your downside.

Nevertheless, the ProShares Ultrashort Bloomberg Natural Gas ETF (NYSE: KOLD) is a way to earn (-2X) the daily performance of a natural gas index.

In comparison, the KOLD ETF is down 90% YTD while natural gas prices soar. So, it gives you an idea of how quickly earnings can dry up in these types of investments.

What Gas ETFs to Buy for Passive Investors

The funds listed above are the best gas ETFs to buy for capturing the explosive rise in gas prices. But, for passive investors, these may not be the best option. For one thing, the gas and oil market can change rapidly.

During the pandemic, oil prices plunged below $0 for the first time. Then, two years later, we are looking at record high prices of over $130. As a result, oil and gas ETFs are having wild swings.

Nonetheless, research from J.P. Morgan shows the cost burden of higher gas prices is around $7 billion per month. As a result, consumers have less to spend in other areas of the economy. We already see the evidence with companies like Walmart (NYSE: WMT) and Target (NYSE: TGT) missing earnings estimates while blaming transportation costs.

In short, profits are being pulled from other parts of the economy to compensate for the lack of supply and rising demand. With this in mind, the energy sector looks ready to continue its run.

The Energy Select Sector SPDR Fund (NYSE: XLE) is an excellent option for passive investors looking to gain exposure with less risk. The XLE ETF is up 48% YTD while investing in top gas and oil companies like Exxon Mobile (NYSE: XOM). No matter your investing style, with the price at the pump holding steady, these are the top gas ETFs to buy this year to get your share.

The post Top Gas ETFs to Buy in 2022 with Soaring Gas Prices appeared first on Investment U.

Read More

Continue Reading

Trending