GNOM: ETF Review and Health Dashboard for October

0

ConceptCafé/iStock via Getty Images

This series of monthly articles features a dashboard with global healthcare industry metrics. It can also serve as a top-down analysis of sector ETFs such as iShares US Healthcare (IYH) ETF and Health Care Select Sector SPDR ETF (XLV), whose largest holdings are used to calculate these parameters.

Shortcut

The next two paragraphs in italics describe the dashboard methodology. They are necessary for new readers to understand metrics. If you are used to these series or if you are short on time, you can skip them and go to the leaderboards.

Basic Metrics

I calculate the median value of five fundamental ratios for each industry: return on earnings (“EY”), return on sales (“SY”), return on free cash flow (“FY”), return on equity (“ROE “), gross margin (“GM”). The reference universe includes large companies in the US stock market. The five basic measures are calculated over the last 12 months. For everyone, the higher, the better. EY, SY and FY are the medians of the inverse of Price/Earnings, Price/Sales and Price/Free Cash Flow. They are better for statistical studies than price/something ratios, which are unusable or unavailable when the “something” is close to zero or negative (e.g. companies with negative earnings). I also look at two momentum indicators for each group: median monthly return (RetM) and median annual return (RetY).

I prefer medians to means because a median divides a set into a good half and a bad half. A capital-weighted average is skewed by extreme values ​​and larger companies. My metrics are designed for stock picking rather than index investing.

Value and quality scores

I calculate historical baselines for all metrics. They are denoted respectively EYh, SYh, FYh, ROEh, GMh, and they are calculated as averages over a retrospective period of 11 years. For example, the value of EYh for health care providers in the table below is the 11-year average of the median earnings yield in this industry.

The Value Score (“VS”) is defined as the average difference in % between the three valuation ratios (EY, SY, FY) and their baselines (EYh, SYh, FYh). Similarly, the Quality Score (“QS”) is the average difference between the two quality ratios (ROE, GM) and their baselines (ROEh, GMh).

Scores are in percentage points. VS can be interpreted as the percentage of undervaluation or overvaluation relative to the baseline (positive is good, negative is bad). This interpretation should be taken with caution: the baseline is an arbitrary reference and not an assumed fair value. The formula assumes that the three evaluation measures are equally important.

Current data

The following table shows last week’s closing metrics and scores. The columns represent all the data named and defined above.

VERSUS

QS

EY

SY

AF

DEER

GM

EYh

SYh

FYh

ROeh

GMH

RetM

RetY

HC equipment

-18.59

-2.20

0.0303

0.2437

0.0215

12.10

68.69

0.0333

0.2785

0.0327

13.92

63.19

-11.29%

-28.75%

Healthcare providers

10:30 a.m.

2.46

0.0581

1.4131

0.0767

19.28

8:41 p.m.

0.0526

1.4404

0.0627

15.91

24.38

-4.31%

-9.70%

Pharma/Biotech

25.03

32.35

0.0515

0.2327

0.0496

34.62

80.78

0.0374

0.2497

0.0344

21.05

80.64

-0.91%

5.25%

life science tools

-12.18

7.93

0.0328

0.1912

0.0273

17.26

59.07

0.0299

0.2898

0.0311

15.85

55.22

-9.52%

-27.87%

Value and quality chart

The following graph plots the Value and Quality scores by industry (higher is better).

Value and quality of health care

Value and quality of health care (Graphic: author; data: Portfolio123)

Evolution since last month

The value score improved significantly in healthcare equipment and life science tools.

Variations in value and quality

Variations in value and quality (Graphic: author; data: Portfolio123)

Momentum

The following chart plots momentum data.

Momentum in healthcare

Momentum in healthcare (Graphic: author; data: Portfolio123)

Interpretation

Pharma/Biotech is undervalued by about 25% compared to 11-year averages. It is also well above the historical baseline in terms of quality. Healthcare providers are undervalued by about 10% against the same metrics, and they are close to their quality benchmark. Life science tools and healthcare equipment are overvalued by around 12% and 19%, respectively. It can be partly justified by a good quality score for the first.

Quick facts about the PBE

Genomics is one of the most promising fields in the pharmaceutical/biotechnology industry. The Global X Genomics & Biotechnology ETF (NASDAQ: GNOM) provides exposure to innovative companies in the field of genomics and genetic medicine. Its total expense ratio is similar to that of the iShares Biotechnology (IBB) ETF: 0.50% versus 0.44%. Both are significantly above XLV (0.10%).

As described by Global ETFs X, companies are selected based on revenue exposure to any of the following business operations: gene editing, genomic sequencing, development and testing of genetic medicine/therapies, computational genomics, and genetic diagnostics. Companies that derive at least 50% of their revenue from these operations are eligible for the index. Other companies categorized as “Biotechnology” by FactSet are further reviewed and analyzed based on R&D expenditures, product pipeline, and operating business segments. Companies exposed to commercial activities related to genomics are also eligible for the index.

Then, eligible companies from the two sets described above are ranked together by a score based on a natural language processing algorithm that evaluates publicly available information such as financial websites, search engines and corporate publications. ‘company. The top 40 ranked companies make up the final index.

GNOM owns 40 shares. The portfolio is fairly concentrated: the aggregate weight of the 10 main holdings is 47% (list below with growth ratios).

Teleprinter

Last name

Lester%

EPS growth %TTM

Sales growth %TTM

SRPT

Sarepta Therapeutics, Inc.

6.24

26.8728

39.1783

ALNY

Alnylam Pharmaceuticals, Inc.

5.06

-7.4607

28.6111

SHINE

Beam Therapeutics, Inc.

5.03

50.967

9999

NTRA

Natera, Inc.

4.84

-65.8044

43.3016

CRSP

CRISPR Therapeutics SA

4.57

-261.1157

-98.3564

NTLA

Intellia Therapeutics, Inc.

4.57

-87.3286

8.443

BMRN

BioMarin Pharmaceutical, Inc.

4.56

-94.0314

-1.2492

A

Agilent Technologies, Inc.

4.45

36.7848

8.4175

BNTX

BioNTech SE

3.96

171.0948

157.0214

QGEN

Qiagen AG

3.95

8.3045

3.2672

Since 01/07/2019, GNOM has underperformed its competitor ETF iShares Genomics Immunology and Healthcare (IDNA), sector benchmark XLV and industry benchmark IBB (see next chart ). The price history may be too short to evaluate the strategy on past performance, but for an investor looking specifically for a genomics ETF, IDNA’s past performance looks a bit better.

Also, as a software engineer with a certification in machine learning, I don’t think the stock picking step with an NLP algorithm running on public information is a smart use of machine learning. Public information about a company usually includes a lot of marketing content and repurposed self-description, which can be heavily biased!

GNOM versus IDNA, XLV, IBB

GNOM versus IDNA, XLV, IBB (Graphic: Portfolio123)

Dashboard list

I use the first table to calculate the value and quality scores. It can also be used in a stock selection process to check the standing of companies against their peers. For example, the EY column tells us that a large pharma/biotech company with an earnings yield greater than 0.0515 (or a price/earnings less than 19.42) is in the better half of the industry with respect to this metric. A list of scorecards is sent monthly to Quantitative Risk & Value subscribers with the most profitable companies ranking in the top half among their peers on all three valuation metrics at the same time. The list below was sent to subscribers several weeks ago based on the data available at that time.

DIV

Vir Biotechnology, Inc.

QLED

QuidelOrtho Corp.

IRWD

Ironwood Pharmaceuticals, Inc.

DFP

Pfizer Inc.

WHERE TO GO

Organogenesis Holdings, Inc.

mrna

Moderna, Inc.

ABC

Amerisource Bergen Corp.

ADV

DaVita, Inc.

THC

Tenet Healthcare Corp.

ITOS

iTeos Therapeutics, Inc.

This is a rolling list with a statistical bias toward long-term excess returns, not the result of an analysis of each stock.

Share.

About Author

Comments are closed.