Trading Nation

This year’s best-performing ETF could rise even higher

Trading Nation: Big run for biotech

Talk about a bionic run.

Among large U.S. exchange-traded funds, this year's top performer is the SPDR S&P Biotech ETF (XBI), which has surged 42 percent year to date through Wednesday's close.

The ETF has risen 10 percent in the past two weeks alone, spurred by Gilead's deal to acquire Kite Pharma, which sent both companies' shares higher. Not only are they both components of the fund, but the takeout led to increased optimism about large and small pharmaceutical companies alike.

For instance, Wedbush analyst David Nierengarten increased his rating on Juno Therapeutics to outperform from neutral last week and nearly doubled his price target, explaining that the Kite deal "further validates the CAR-T business model, and makes us review our JUNO valuation ... [W]e now model for a faster adoption rate … as GILD's entry into space should lead to greater awareness and infrastructure buildup."

Meanwhile, the deal also increases optimism about the potential growth trajectory for larger and more mature drug companies.

The planned acquisition "shifted the narrative for biotech," Cowen & Co.'s head of equity sales trading, David Seaburg, said Wednesday on CNBC's "Power Lunch."

It made investors "very comfortable to go out and buy some of these large-cap biotech names that have values just super-depressed because they have decaying legacy platforms," Seaburg said. "Now they're bolting on some new prospects for growth, and all of the sudden you're seeing some investors come back in."

While Seaburg says the move is "warranted," he said that biotech stocks could now "come in a little bit."

On the whole, however, Seaburg remains optimistic, pointing out that the biotech group is well below the record highs seen in 2015 (which only served as the prelude to a very painful drop).

Striking a similar note, Miller Tabak equity strategist Matt Maley said Wednesday on "Power Lunch" that the group "has had a nice run here over the near term, so it might need to pull back to digest the gains."

Yet the fundamentals, and the long-term technical backdrop, look "really good," Maley added.

The XBI is made up of nearly 100 stocks, none of which makes up more than 4 percent of the ETF. Currently the biggest two components are Kite and Juno, both of which have surged recently.