There are opportunities for investors in the healthcare sector, but it lies with the small-cap biotech companies, not big pharma, Stacey Sears, the Emerald Growth Fund (HSPGX) portfolio manager at Emerald Advisers, says. Sears sits down with Julie Hyman and Josh Lipton on Market Domination to discuss how to play biotech stocks.

“If you think about advancements in DNA editing, advancements in RNA editing, which are ongoing as we sit here today, and broader pursuit of orphan and rare diseases. Decoding of the genome has really enabled that, and small caps have been a big player in that. As a matter of fact, if you take a look at 2023, approximately two-thirds of clinical trials were started by companies in the small and emerging biotechnology space, and approximately 56% of the new drug substances approved in 2023 originated within small and emerging biotechnology companies,” Sears tells Yahoo Finance.

The portfolio manager explains, “Valuation has always been more challenging within the healthcare area, but I would say what is now a tailwind is that the sector has been underperforming over the last couple of years," given its inverse performance with interest rates.

Sears highlights Insmed (INSM) and Wave Life Sciences (WVE) as small-cap biotech names that are poised to gain.

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This post was written by Naomi Buchanan.