Coronavirus Pandemic – As New Frontrunners Emerge in Covid-19 Vaccine

 

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Though over two dozen companies are developing the Covid-19 vaccine, only ten companies are considered the frontrunners as they are already conducting the Phase-3, or at the very least, the Phase-2 trials.  

Among the ten, seven are well-established American and European multi-national corporations (MNCs). At the same time, the other three -- BioNTech (BNTX), Moderna (MRNA), and Novavax (NVAX) -- are mostly momentum companies, gaining significant notoriety in recent months for success in initial trials leading to this vaccine. To put the comparison in a proper perspective, let's compare the annual revenues: Johnson and Johnson's (JNJ) $80B vs. Novavax's $19M, Pfizer's (PFE) $51B vs. Moderna's (MRNA) $60M, and Merck's $47B vs. BioNTech's (BNTX) $122M. 

The only reason the momentum trio has been cited alongside the seven MNCs is their recent ascendence in the Covid-19 vaccine trials. Of course, BioNTech has been partnering with Pfizer, perhaps making it a much safer momentum player. 

As expected, the above correlation matrix shows how the trio shares high correlations among them but low to negative correlations with MNCs depending on the annual performance; for instance, while the trio has negative correlations with Glaxo and Eli Lilly, it has moderately high correlations with the better-performing MNCs like AstraZeneca, Pfizer, and Sanofi. 

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The momentum trio has registered significant gains this year: Novavax 589%, Moderna 201%, and BioNTech 100%. Among the MNCs, AstraZeneca's (AZN) 31% return is the highest, followed by Pfizer's 22% and Sanofi's (SNY) 19%. Glaxo's (GSK) 3% and Eli Lilly's (LLY) 4% are at the bottom. Most of the MNC gains have come in November as the investors are now betting on better-than-expected Phase-3 data.

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In the last two months (since 09/15), BioNTech (58%) and Moderna (34%) remain the two standout winners, while Novavax collapsed (-12%), leading to a negative correlation between Moderna and Novavax. MNCs have generated low to negative (+/-5%) returns, so their correlations remain elevated. Surprisingly, AstraZeneca's prior 0.23 correlation with Glaxo has now jumped to 0.90.

On the heels of last Monday's (11/9) great news from Pfizer, i.e., 90% effectiveness on Phase-3 trial, the market may see a new flight to quality, as investors rotate capital from the high-flying momentum stocks to the MNCs. 

Stay safe!

Data Source: Yahoo Finance and Macrotrends

Disclaimer: The author is not advocating any of the stocks listed here. Consult your Registered Rep, RIA, or Financial Planner for an appropriate asset allocation model and the suitability of stocks and other holdings for you.

-Sid Som

homequant@gmail.com

Coronavirus Pandemic – Using Vaccine ETF as an Investment Vehicle

 

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An Exchange Traded Fund (ETF) is an excellent investment vehicle for those who are risk-averse to individual stocks and are uncomfortable with mutual funds' restrictions.  

In 2020, as the pandemic became frightening, many Bio/Pharma ETFs changed their primary holding to focus on the pandemic. In the process, broadly, two distinct groups emerged, wherein one focused on the development of vaccines, while the other concentrated on the treatment and administration. While they are not mutually exclusive, their primary holdings, however, are reasonably different. For example, the PPH ETF comprises the major vaccine development companies like AstraZeneca, Pfizer, J & J, Eli Lilly, Merck, Sanofi, etc. primarily, while the BBH ETF focuses on treatment providers and momentum stocks like Amgen, Biogen, Gilead, Regeneron, Moderna, etc. 

Since vaccine development is a medium-to-long-term venture, the development ETFs hardly took off this year, whereas the treatment and momentum ETFs produced some standout returns. The above two graphs representing the two sub-sectors convincingly prove the point: PTH has returned 52% while PPH has been hovering on the negative-return zone.

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Due to the similarity of primary holdings, the development ETFs share high positive correlations among themselves but much lesser correlations with the treatment and momentum ETFs. Conversely, the treatment and momentum ETFs share a high degree of correlations among themselves, while much lesser correlations with the development sub-group. 

BBH, a treatment and momentum ETF, shares very high correlations of 0.9873, 0.9031, and 0.9474, respectively, with the other three ETFs in the same sub-group, namely IBB, PTH, and XB, but significantly lower correlations with the development ETFs. On the other hand, XPH, a development ETF, shares very high correlations with its counterparts in the sub-group and much lower correlations with the other sub-group.

Therefore, one needs to pick a complementary combination of ETFs to play the Covid-19 vaccine arena effectively.

Data Source: Yahoo Finance

Disclaimer: The author is not advocating any of the ETFs/stocks listed here. Consult your Registered Rep, RIA, or Financial Planner for an appropriate asset allocation model and the suitability of stocks and other holdings for you.

Stay safe!

-Sid Som

homequant@gmail.com