Recently, innovative drugs in the US stock market have continued to gain favor, with company executives and well-known institutions increasing their positions and bullish on leading US pharmaceutical stocks. Sarepta Therapeutics, a leader in pharmaceutical research and development, previously disclosed that company directors Chambers, Michael, and Andrew collectively increased their holdings by 34,900 shares on August 10th.

Smart money is on the move! As a fan of the pharmaceutical race, I have also listed several reasons for "going abroad" to invest in the Nasdaq Biotechnology Index through a fixed investment plan, and I invite everyone to correct me.

Firstly, from an asset allocation perspective, investing in some US stocks can enhance the investment experience!

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Some may think that investing in A-shares alone is already exhausting, so why bother with more? In fact, the biggest advantage of investing in the global stock market is that the "risk-reward ratio" of the asset portfolio can be effectively smoothed!

To put it more simply, "if the east doesn't shine, the west will," building an investment portfolio that includes global assets can better avoid a one-sided market downturn.

Taking the "integration of Chinese and Western medicine" in the pharmaceutical sector as an example, this not only refers to the integration of A-shares and US stocks but also to the combination of traditional Chinese medicine and Western medicine. The correlation between US pharmaceutical stocks and A-share pharmaceutical stocks is relatively low. In the current volatile market, making a portfolio allocation can effectively complement A-share pharmaceuticals and reduce risk.

Let's look at the data: Suppose we build a global pharmaceutical fund portfolio, including "300 Pharmaceuticals, Hang Seng Medical and Healthcare, S&P Biotechnology, and Nasdaq Biotechnology" four products. So far this year, the CSI 300 Pharmaceutical Index has fallen by 11.45%, the Hang Seng Medical and Healthcare Index has fallen by 21.8%, the S&P Biotechnology Select Industry Index has risen by 0.08%, and the Nasdaq Biotechnology Index has fallen by 3.23%. So, what is the return of our fund portfolio?

Our temporarily built global pharmaceutical fund portfolio has only fallen by -9.1%, with losses significantly lower than investing in A-shares or Hong Kong stock pharmaceutical sectors alone. The role of the investment portfolio in smoothing the risk of decline is evident.

Secondly, in the trillion-dollar healthcare market, US stocks are the most attractive!

The pharmaceutical sector is a "perpetual demand," a "long bull race," and a place where strong stocks emerge. These descriptions of the pharmaceutical race should already be very familiar to everyone.Catalysed by the global aging population, the total global healthcare expenditure has been steadily increasing, reaching $7.26 trillion in 2016 and $8.86 trillion in 2020, with a compound annual growth rate (CAGR) of 5% over four years. According to Frost & Sullivan's estimations, the global healthcare expenditure is expected to rise to $11.46 trillion by 2025.

In this vast market, the investment appeal of U.S. stocks is evidently substantial.

On one hand, U.S. stocks are home to the world's most formidable pharmaceutical companies. Looking at the main components of the NASDAQ Biotechnology Index, it includes companies such as Amgen, Gilead, Moderna, Regeneron, Illumina, and others. These companies are global leaders in areas such as genetic testing, innovative drugs, and COVID-19 vaccines. There are 10 pharmaceutical companies with a market value of over $100 billion listed on U.S. stocks.

On the other hand, the U.S. market's demand-side payment capacity is extremely strong. Firstly, the overall payment amount is high; secondly, and more importantly, the unique payment structure in the U.S. plays a significant role.

Unlike our domestic medical insurance, which is the sole payer and enjoys the sole right to drug pricing, in the U.S., commercial insurance companies, pharmaceutical companies, and drug distribution channel merchants together form the drug pricing mechanism. Due to the "pay for others' consumption" model, Americans are particularly willing to spend on medical services, with per capita health expenditure consistently ranking first in the world.

Data shows that from 2014 to 2019, U.S. per capita expenditure maintained a 4.4% compound annual growth rate, with a nearly 10% increase in 2020. The annual per capita health expenditure is as high as $12,000, accounting for approximately 20% of per capita GDP, while China's figure is around 7%. Such a payment structure objectively raises the profitability of U.S. pharmaceutical companies.

In addition, looking at the development stages of listed companies, U.S. biopharmaceutical technology can generally enter the capital market for financing at an earlier stage, allowing investors to share more in the growth and business explosion of companies, which is undoubtedly a significant positive for investors.

Thirdly, the golden opportunity created by a drop!

A significant drop initially triggers fear, but upon calm reflection, opportunities are created by drops, especially in high-quality tracks where temporary adjustments may present another chance to get on board. Historically, we have found that when high-quality tracks experience adjustments, each drop represents a long-term buying opportunity. Biotechnology is a representative of "hard technology" in U.S. stocks and is an excellent track.

Since the beginning of 2023, the innovative drug sector, represented by the NASDAQ Biotechnology Index, has undergone a minor adjustment. As of July 2022, the NASDAQ Biotechnology Index's price-to-book (PB) ratio was 3.79, at the 4.60% percentile over the past five years, indicating a historically low level. The sector has significant development potential, and its configuration value is beginning to stand out.Everyone can take a look at the Nasdaq Biotechnology Index (NBI) chart. The data shows that even after several significant downturns in 2000, 2008, and 2015, the long-term trend has always been upward. Moreover, after each substantial pullback, the index tends to reach new highs again.

Fourthly, the expectation of a slowdown in Federal Reserve interest rate hikes is a recent positive for the Nasdaq Biotechnology Index.

The Nasdaq Biotechnology Index is a high-quality index that can represent the pharmaceutical sector in the US stock market. The index primarily includes companies listed in the biotechnology sector of the Nasdaq market, as well as a small number of Western medicine, life science tools and services, healthcare equipment, and healthcare technology companies, totaling 258 constituents. The top ten weighted stocks include Regeneron Pharmaceuticals, Amgen, Gilead Sciences, Vertex Pharmaceuticals, Moderna, AstraZeneca, etc., all of which are strong leading enterprises with robust vitality.

In terms of performance, the Nasdaq Biotechnology Index has an excellent long-term track record. Since the index was launched in 1993, the NBI, representing the innovative drug sector of the US stock market, has been steadily rising. Over the past 20 years since 2003, the index has accumulated a gain of 748%, far exceeding the S&P 500 (336%) and the S&P 500 Healthcare Index (414%).

The US innovative drug sector is more sensitive to interest rates. If interest rates are declining or the expectation of rate hikes slows down, the Nasdaq Biotechnology Index, which has lagged in the growth style in the early stages, is also expected to rebound. The recent release of the US June CPI and PPI data has reinforced the market's expectation that the Federal Reserve is nearing the end of the interest rate hike cycle and the peak of interest rates is approaching.

The innovative drug sector has experienced two consecutive years of pullbacks in 2021 and 2022. With the expectation of slowing interest rate hikes, the Nasdaq Biotechnology Index, which has lagged in the growth style of the US stock market, may be poised for a grand return to value.

For a "thick snow long slope" industry, the best investment method is to hold the index fund of that industry for the long term, exchanging time for returns and earning beta until your hands are soft. The beta of the biotechnology industry may be more substantial than the alpha you have painstakingly selected and timed in other industries. After all, the US stock market's biotechnology sector has been a long-lasting bull market.