There’s not a shortage of biotechnology exchange-traded funds available to U.S. investors. Including leveraged products, there are roughly 20 such products, but what is lacking is international diversity.
What Happened: That changed Thursday with the debut of the Global X China Biotech Innovation ETF (NASDAQ: CHB), extending what’s been a brisk week of launches from the issuer. Global X has been busy in terms of bringing new exchange-traded funds to market this year and struck gold on the health care front prior to debuting CHB.
The new CHB tracks the Solactive China Biotech Innovation Index and holds 27 stocks, a small number compared to some of the more established, domestically focused alternatives in this category.
Why It’s Important: CHB’s small roster size shouldn’t be conflated with limited opportunity. Rather, it’s a reflection of China’s still young biotechnology industry – one that’s significantly less mature than its American counterpart.
However, there’s massive opportunity when it comes to the investment combination of China and health care. The world’s second-largest economy is home to the biggest health hcare market, an aging population and health care spending there is growing more rapidly, on a percentage basis, than it is in mature developed markets, such as the U.S. and Japan.
“With the rise of the broader health care sector, China’s biotech industry is already among one of the fastest growing in the world and is expected to mature from its infancy to a global leader,” writes Global X analyst Chelsea Rodstrom. “At just one-tenth of the size of its counterpart in the US, there appears to be ample room for continued growth.”
China’s health care sector was essentially state-controlled until 1990s, but it’s expected to vault a valuation of $2.4 trillion by 2030. That’s impressive growth.
What’s Next: Data confirm there’s potentially epic growth to be had in China’s biotech market. As just one example, the biologics segment is dwarfed in size by its U.S. counterpart.
“Due to its relatively smaller size, the growth of China’s biologics segment is substantially higher than the US’s. The segment experienced 30% growth from 2015-2018, and is expected to achieve 40% growth through 2023,” notes Rodstrom. “China-based biologics companies may have significant advantages in trialing and reach because of lower costs, vast access to data, and the unique characteristics of China’s enormous population.”
Biologics is just one possible tailwind for the new CHB. Others include a senior-aged population that could approach 330 million over the next several years, lower development costs and the deep pockets of venture capital investors eager to access the Chinese healthcare market.
CHB charges 0.65% per year, or $65 on a $10,000 investment.
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