Punishment For This Healthcare ETF Could Create Opportunity

The VanEck Vectors Generic Drugs ETF (NASDAQ:GNRX) is off 4.5 percent year-to-date and 1.3 percent over the past month, underscoring the ETF's vulnerability in the face of weakness by some of its marquee holdings, including Teva Pharmaceuticals Industries Ltd. (NASDAQ:TEVA) and Mylan NV (NYSE:MYL).

Those stocks, which are the second- and third-largest holdings in GNRX, respectively, combining for 12.6 percent of the ETF's weight, tumbled last month.

Mylan and Teva have been absolutely bashed for the entire month of September and into early October here, on very heavy trading volume. As this heavy activity occurs not only in the two aforementioned stocks but across the Pharmaceutical space in many respects, this seems like a perfect time to address a niche ETF that surprisingly has not seen more action that it has given the market atmosphere here, notes Street One Financial Vice President Paul Weisbruch.

GNRX, which debuted in January, tracks the Indxx Global Generics & New Pharma Index. That benchmark is intended to track the overall performance of companies that derive a significant proportion of their revenues or that have the potential to derive a significant proportion of their revenues from the generic drug industry, or that have a primary business focus on the generic drug industry, according to VanEck.

The 79 stocks found in GNRX have a weighted average market value of $11.5 billion, putting the ETF in mid-cap territory.

Year-to-date, GNRX is lagging traditional healthcare ETFs and emerging markets funds, a relevant point because the ETF has significant emerging markets exposure. India is the ETF's second-largest country weight after the US with a weight of 23.6 percent. After India, GNRX allocates nearly another 21 percent of its geographic weight to developing economies.

The problem GNRX is facing is U.S. politics and the specter of Democratic nominee Hillary Clinton winning the White House.

Given the price pressure that exists in this space lately and the fact that the situation is not likely to resolve itself at any point in the near future, especially if Clinton does win the U.S. Presidential election, it makes sense to keep GNRX on the dashboard from either a long or short standpoint, adds Weisbruch.