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Small-Cap Biotech Stocks Being Accumulated By The World's Largest Money Managers
July 12, 2012 | 5 comments | includes: DNDN, ISIS, LXRX, MNKD, OREX, PDLI, PGNX, SPPI, THLD, VICL, VPHM, ZIOP

The SPDR S&P Biotech ETF is up almost 40% YTD, after just a 5% rise in 2011. Within that group, many small-cap biotech stocks (those with market-caps between $300 million and $2 billion) are up even more sharply. These small-cap biotech companies are generally considered very speculative and a risky investment, in contrast to large-cap and some mid-cap biotech companies that have well established commercialized product portfolios that generate revenues, and maybe even profitability. We believe it is significant when the world's largest money managers invest even a small portion of their portfolio in these small-cap biotech companies, thereby giving their seal of approval in what is otherwise considered a very risky investment.

These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are bullish on the biotech group, adding a net $4.2 billion in Q1 to their $117.4 billion prior quarter position in the group. Furthermore, overall they are over-weight in the group by a factor of 1.2; that is, taken together, the 25 mega funds have invested 2.0% of their assets in the group, slightly more than the 1.7% weighting of the biotech group in the overall market (for more general information on these mega funds, please look at the end of the article)