First Trust's Ryan Issakainen on Biotech Investing and the Future of the Industry
Can you talk about First Trust’s origins and its mission as a firm?
First Trust was founded back in 1991 and our work is driven by the principle that financial advisors are in the best position to help and assist their clients. To help with that mission we provide a variety of products including Exchange Traded Funds (ETFs) for use as building blocks in their client portfolios.
The relationship between financial advisors and their clients is an extremely important one, so we always want to make sure we do all we can to support them.
Describe the strategy behind the First Trust NYSE Arca Biotechnology Index Fund
Our fund (NYSE ARCA: FBT) is an ETF that tracks the NYSE Arca Biotech Index. It’s comprised of 30 companies, it's equally weighted and it rebalances every quarter.
We structured the fund this way as we believe that those factors are extremely important. There are 30 companies, which gives you diversification without too many holdings. You can benefit from specific company developments whether that’s new product announcements, a research breakthrough or some other kind of meaningful event. Also, we like the fact that the index rebalances on a quarterly basis so there is a built-in function of selling your winners and buying more of your lower performers and that really provides added value over time.
The biotechnology sector performed well in recent years, but also shows some volatility. What factors drive returns in the sector?
What’s unique about the biotechnology industry is that there are several factors that drive returns in addition to just market risk. There are regulatory developments, there are scientific breakthroughs, and often these things happen at unexpected times.
I think it’s easy to focus on the individual volatility of the sector - it’s certainly more volatile than the overall market - but it’s also important to keep in mind how this interplays with the rest of your portfolio.
The best thing to do as an investor is speak to a financial advisor. You can define your goals and objectives, figure out your risk tolerances, and devise an investment strategy that works best for your specific circumstances.
What are your thoughts on the future of the biotechnology industry?
It’s a sector that really is driving a lot of the innovation in our economy. It continues to prove its importance, particularly for older people because with age comes a variety of conditions that require treatment.
A person’s quality of life can be significantly improved by the advances in the biotech industry, and one of the trends that we think is very important is delivering care based on people’s genetic make-up. It’s an area where biotech companies have been very successful in the past and we think that will continue in the coming years.
Regulation is an ever-present consideration, and also we need to see improvements in the effectiveness and efficiency of clinical trials. This will benefit patients because they will receive treatment faster, and it helps companies in that they may have longer periods where they have patent protection so that improves their earnings and cash flow.
Why did you choose the New York Stock Exchange as your listing venue for this fund?
The NYSE provides a very high-quality index product. When we first launched this ETF back 2006, this was an index that already had an established track record, it was a well-followed index so felt like a natural fit for us.
Any time we have the opportunity to work with a strong, global brand like the New York Stock Exchange, we think that that’s a home run.