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Global AnimalBiz Posts Loss, Outpaces Healthcare ETFs

October 16, 2008 – Comments (0) | RELATED TICKERS: NEOG , ALO , XLV

The ETFI Global AnimalBiz Index includes a total of 35 companies with market caps between $100 million to $10 billion U.S. Dollars, with a semi-active rating system which is rebalanced each quarter to choose the top 25 rated companies as active components. The index excludes all big pharma and diversified healthcare giants which have animal health segments such as Schering-Plough (Intervet), Novartis, Pfizer, Merck + Sanofi-Aventis joint venture (Merial), Wyeth (Fort Dodge), and Eli Lilly (Elanco). These companies are excluded to make the index more leveraged to animal care as this segment typically represents only about 5% of their sales.

The Global AnimalBiz Index has declined with the overall market malaise, but outpaced the S&P 500 Index ETF (SPY) and its benchmark funds for the healthcare sector, including the iShares S&P Global Healthcare (IXJ) and the Healthcare Sector SPDR (XLV). Animal healthcare is dominated by several large and mega-cap global pharmaceutical companies, which either have distinct operating divisions from acquisitions or joint ventures focused on this niche area of pet and livestock medicine.

With the exclusion of these large and mega-cap companies from the Global AnimalBiz Index, it is dominated by small and mid-cap stocks with an average market cap of about $1B for all of the companies. Also, the companies in the index are takeover candidates given their small size and niche focus – such as the $1.6B tender offer by King Pharma (KG) for Alpharma (ALO) which was recently extended until November 21 as the latter rejected the initial offer. My favorite pick in the index is Neogen (NEOG), which is included in the accompanying table as one of the top five rated stocks.