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Checking Up on Biotech

The Dow sank 281 points on Friday, Aug. 3, gained it all back and more the following Monday, Tuesday and Wednesday, then plunged again to finish the week. What a wild ride.

As we head into the weekend, I'm reminded of the advice Count Rugen gave Prince Humperdinck in The Princess Bride: "Get some rest -- if you haven't got your health, you haven't got anything."

Not every fund was sucked down by the credit crunch-induced selloff. This week a group of highly concentrated, narrow-focus exchange-traded funds stand out as best in class. All of the ETFs on the best-performing list, excluding the SPDR S&P Biotech (XBI), are too new to be rated.

If you want to know more about these funds, please see my article from March, when the funds were launched.

For the five trading days ending Thursday, Aug. 9, the HealthShares Autoimmune-Inflammation (HHA) rose 7.7%. The fund's holding of Enzo Biochem (ENZ) jumped 38.5% with a favorable ruling on a motion in its patent-infringement lawsuit against Applera (ABI). Another holding, Nektar Therapeutics (NKTR) popped 21.6% on news of a drug development partnership with Bayer (BAY).

The second-best health and biotech fund this week is the HealthShares Metabolic-Endocrine Disorders (HHM). This exchange-traded fund that invests in stocks treating diabetes, growth deficiency and obesity had an impressive return of 7.1%.

The best stock in this fund's portfolio was Tercica (TRCA), up 35.3% on announcing the European Commission's marketing authorization for Increlex. The "orphan" designation the drug won gives the company 10 years of exclusive marketing and a $20 million milestone payment under a licensing agreement with Ipsen.

Best-Performing Health & Biotech Funds
Ranked by returns for the week ending Aug. 9
Fund Ticker Rating Fund Type 1 Week Total Return
HealthShares Autoimmune-Inflammation ETF HHA U ETF 7.72%
HealthShares Metabolic-Endocrine Disorders ETF HHM U ETF 7.10%
SPDR S&P Biotech ETF XBI C- ETF 5.69%
Healthshares Cardiology Devices ETF HHE U ETF 5.11%
HealthShares Respiratory/Pulmonary ETF HHR U ETF 5.06%
HealthShares Enabling Technologies ETF HHV U ETF 5.04%
HealthShares Emerging Cancer ETF HHJ U ETF 4.96%
HealthShares Cancer ETF HHK U ETF 4.35%
Manning & Napier - Life Sciences Series Fund EXLSX U Open-End 4.24%
H&Q Healthcare Investors HQH U Closed-End 3.21%
Source: Bloomberg

The loudest sneeze this week came from the Gabelli Global Healthcare & WellnessRx Trust (GRX), blowing off 7.2% of the value from the closed-end shares. With an inception date of June 28, 2007, the fund plans to issue its first quarterly report, hopefully with holdings data, in the fourth quarter of this year.

PowerShares tracked the performance of the Dynamic Healthcare Services Intellidex Index to a loss of 4.2% with its ETF, the PowerShares Dynamic Healthcare Services Portfolio (PTJ). Of the 30 holdings, the biggest declines were felt in Medcath (MDTH), which lost 18.7%, Emergency Medical Services (EMS), which fell 18.1%, and Apria Healthcare Group (AHG), which sank 13.8%.

Worst-Performing Health & Biotech Funds
Ranked by returns for the week ending Aug. 9
Fund Ticker Rating Fund Type 1 Week Total Return
Gabelli Global Healthcare & WellnessRx Trust GRX U Closed-End -7.18%
PowerShares Dynamic Healthcare Services Portfolio PTJ U ETF -4.24%
PowerShares Dynamic Healthcare Sector Portfolio PTH U ETF -3.37%
iShares DJ US Health Care Providers Index Fund IHF B ETF -3.19%
Schwab Health Care Fund SWHFX B- Open-End -2.96%
ICON Healthcare Fund ICHCX E+ Open-End -2.58%
Blackrock Health Sciences Trust BME C Closed-End -2.21%
Fidelity Select Medical Delivery Portfolio FSHCX B- Open-End -2.08%
Powershares Dynamic Pharmaceuticals Portfolio PJP B- ETF -1.80%
SPDR S&P Pharmaceuticals ETF XPH C ETF -1.78%
Source: Bloomberg

On Friday, the Food and Drug Administration turned down Wyeth's (WYE) experimental antipsychotic pill of bifeprunox for schizophrenia. Wyeth feels that its pill is better since it does not cause weight gain. However, part of that may be due to the side effect of nausea.

In the end, the FDA believes that market traders furiously buying one day and panic selling the next would be better served by the more effective schizophrenia treatments of Eli Lilly's (LLY) Zyprexa and Johnson & Johnson's (JNJ) Risperdal.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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