Don’t be fooled by the sluggish performance within the health-care sector. A careful glance reveals plenty of bullish price action, starting with merger and acquisition activity, which is lifting the biotechnology group.

Pfizer just announced the $11.4 billion acquisition of Boulder, Colo.-based Array BioPharma. The buyout price represents a 62 percent premium over Array’s closing price on June 14. That premium further demonstrates the urgency felt in the industry to find next-generation therapies to treat difficult diseases like cancer.

The ALPS Medical Breakthroughs ETF (SBIO) has jumped 25.52 percent since the start of 2019, easily outpacing the 6.37 percent gain for the Health Care Select Sector SPDR Fund (XLV). The latter tracks 62 health-care stocks within the S&P 500.  

SBIO holds a basket of 68 small and mid-cap biotechs that have one or more drugs in either Phase II or Phase III of U.S. Food and Drug Administration clinical trials. Among SBIO’s top holdings are Array BioPharma, Galapagos NV and Ascendis Pharma. SBIO charges 0.50 percent annually.

Today’s brisk M&A activity within the biotech group comes on the heels of previous blockbuster deals.

During the first quarter, Bristol-Myers Squibb agreed to acquire Celgene in a $74 billion deal while Eli Lilly agreed to an $8 billion bid for Loxo Oncology.

Other funds getting a boost from buyout fever include the iShares Nasdaq Biotechnology ETF (IBB). IBB has climbed just over 10 percent year to date. Unlike SBIO’s, the holdings within IBB carry an average market cap size of $33 billion, tilting the portfolio heavily toward established large caps. IBB holds 222 stocks and includes Amgen, Biogen and Gilead Sciences.

Like other biotech ETFs, IBB is outperforming equity index funds linked to the broader health-care industry. IBB charges annual fees of 0.46 percent.

A confluence of factors with the biotech space is contributing to a steady flow of buyout activity.

Established pharmaceutical companies are trying to contend with drug pricing inflexibility and patent expirations with replacement therapies, and instead of trying to develop these treatments in house, big pharma is buying its way into the market. The hope is that innovative treatments used by newly acquired companies will usher in the next wave of blockbuster cures.  

The ARK Genomic Revolution ETF (ARKG) is another biotech-themed fund but has a narrower focus on small and mid-cap companies that use emerging therapies like bioinformatics, CRISPR DNA sequences, molecular diagnostics, and stem cells. ARKG, which holds between 30 and 50 companies at any given time, has jumped 32 percent year to date. Most of its peer biotech ETFs are index based whereas ARKG is actively managed. The fund’s annual expense ratio is 0.75 percent.

For shorter-term investors who are OK with leverage but looking to risk less capital, the Direxion Daily S&P Biotech Bull 3x Shares (LABU) is another choice. For example, instead of risking $10,000 in an unleveraged biotech ETF, a trader could get similar short-term exposure by investing just one-third of that amount. LABU offers triple daily leverage and has climbed almost 42 percent since the start of the year.

Looking ahead, Moody's predicts more biotech buyouts, especially for companies focused on cancer drugs and gene therapy. In a report released earlier this month, the credit rating agency identified $195 billion worth of cash holdings across 22 large pharma and biotech companies in the U.S., Europe and Japan.

Put another way, it’s the sort of ammunition that biotech bulls can celebrate.