Let's Check Up on 2 Immunology-Focused Oncology ETFs

Recently, iShares, the collection of exchange-traded funds managed by BlackRock , published a piece titled Three megatrends themes to watch in 2022. Looking through the key takeaways, I saw something that surprised me, if only because I did some work back in 2015 with a then-new issuer who launched a fund that covers that exact strategy. The three things to watch, according to iShares, are a pretty broad: digital transformation (cloud, 5G, and cybersecurity); robotics & artificial intelligence; and -- the one that caught my eye -- immunology-focused-oncology therapeutics. Immunology-focused treatments represent a huge innovation in therapeutic development for cancer treatments. Traditional cancer treatments include chemotherapy, radiation treatments, and in many cases, surgery. Immunology-based cancer treatments, per the American Cancer Society are treatments that help the body's natural immune system recognize and destroy cancer cells. The issue with cancer is that viruses and other ailments are by their nature foreign to the body, so when they arrive, the immune system recognizes them as something that shouldn't be here and gets to work. Cancer cells originate with existing healthy cells that mutate, so it is a lot harder for the immune system to recognize the threat, and, in many cases even if it does, the response isn't strong enough to be effective. These new therapies help the body recognize these threats and in many cases help boost the efficacy of the response. The iShares product I feel is best suited to track this very targeted health care strategy is the iShares Genomics Immunology and Healthcare ETF . The product I helped bring to market in 2015? The Cancer Immunotherapy ETF . Just to be clear, while I did help bring CNCR to market, I haven't been involved with the index or fund since 2016. Also, I don't own shares of either fund I'm going to discuss in this article. I'm trying to be objective here, so let's see what kinds of exposure these funds can provide investors. Treating CNCR Before the 79-basis point Cancer Immunotherapy ETF was launched, the founder of Loncar Investments (the index provider), Brad Loncar, had already been focused on biotechnology since at least 2008. While Loncar is an expert in his own right, he has also assembled some strong partners that act as his index committee. Reading through the inclusion criteria in the index methodology shows the index is not just looking for exposure to this space, but really targets companies that are squarely pursuing solutions. From the methodology, they are looking for the following characteristics in companies: * Has immunology-focused oncology drugs approved by the Food and Drug Administration * Has immunology-focused oncology drugs in human trials, or is entering human trials for immunology-focused oncology drugs. * Is collaborating or partnering with a major pharmaceutical company From a quantitative perspective, the index is looking for names with market cap greater than $100 million and average daily value traded of at least $500,000, so the index is not afraid of some small-cap exposure. Any company currently under investigation by the SEC or any other government or regulatory entity is ineligible for inclusion. I like that part. Looking through the list of 30 holdings in this fund shows some broad names like Merck , Bristol-Myers Squibb , and AstraZeneca , but outside of these companies, which make up about 11% of the fund, everything else from an exposure perspective is a direct hit. Bright Idea: IDNA The 47-basis point iShares Genomics Immunology and Healthcare ETF -- another strong ticker! -- was launched in June 2019 and tracks the New York Stock Exchange Factset Global Genomics Immuno Biopharma Index. I have a couple of notes about the index methodology. Almost a decade ago, Factset acquired independent research firm Revere Data, which, among its products, had developed a robust equity classification scheme that went well beyond S&P's 4 level GICS or Russell's 4 level ICB view of the equity world. A typical GICS index methodology in this space might reference security selection from the third level Biotechnology Industry (the fourth level Sub-Industry is also titled Biotechnology). This methodology references no less than 60 Level 6 Industries. So, from the get-go, there is a lot of granularity available to the index provider to inform security selection. The methodology goes on to describe the selection process as a Keyword Relationship exercise using both the Factset Supply Chain Relationships database and keywords related to Genomics and Immuno Biopharmaceutical products and technologies. This undoubtedly makes for a streamlined rebalance process, but leaves out the kind of insight that having analyst input can bring. From a quantitative perspective, the index requires at least a $300 million market cap and a $2 million average daily value traded minimum, as well, so focusing on slightly larger but much more liquid names. Looking at the holdings, 10 of the funds 49 equity positions are shared with CNCR, including some broad names like Merck and Gilead Sciences and some targeted oncology names like ImmunityBio , Allogene Therapeutics , and Fate Therapeutics . I looked through the descriptions of all the holdings and found 26 names in total that reference oncology and immunology together. The rest do track with the broader genomics focus of the index but again, the focus on oncology is limited. The Final Prognosis This again is a tough one, if only because while IDNA does not have as targeted an exposure to immunology-focused oncology therapies, its exposure to the broader names like Moderna has allowed it to outperform CNCR over the past two years. I guess it comes down to how much stock you put in iShares' ability to call markets. If their immunology-based oncology therapies call for 2022 makes sense to you, then you might want to pass on IDNA and allocate to a much more targeted product in CNCR.

Let's Check Up on 2 Immunology-Focused Oncology ETFs

Here we'll look at the iShares Genomics Immunology and Healthcare ETF and the Cancer Immunotherapy ETF to see how they stack up.

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