This year’s reconstitution of the Russell 2000® Growth Index deserves special attention given the large sector and industry rebalancing. Specifically, the Biotech industry increased a near 3% to approximately 13% of the Russell 2000 ® Growth Index.
Average Weight of Biotech Industry
Source: FactSet & FTSE Russell
The increased weight of the Biotech industry lowers the overall quality of the index based on historical characteristics, evidenced by both significantly lower average ROIC, and a lower average hit rate.
Return on Invested Capital
Source: FactSet & FTSE Russell
Biotech Has a Lower Hit Rate
Source: FactSet & FTSE Russell
In addition, Biotech underperforms historically, and has a higher standard deviation of returns.
Biotech Underperforms
Source: FactSet & FTSE Russell
Biotech Has a Lower Hit Rate
Source: FactSet & FTSE Russell
We believe having a disciplined approach to investing in biotechnology stocks could potentially be helpful to mitigate some of the inherent risks of investing in this industry. SBH’s Small Cap Growth strategy focuses on building portfolios comprised of fundamentally stable growth companies that we expect to outperform through market cycles. In combination with other key attributes, such as defendable competitive advantages and strong management teams, SBH’s Small Cap Growth Team seeks to invest in companies with fundamentally stable growth prospects that offer a measurable competitive advantage by leading or disrupting industries.
To learn more about SBH or speak to a sales representative, please contact us at (800) 836-4265 or contactus@sbhic.com.
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