Invest in Biotechnology with the Biotech ETF

Biotech ETFs can be risky, but can also be a very good investment. Biotech company fortunes can go up and down quite quickly depending on new discoveries, the success or failure of clinical trials, and any number of other things. Many biotechnology companies lack the funds to stay in business very long. Since biotechnology ETFs are indexed to a wide variety of companies, it may be more practical to invest in them rather than individual biotech companies.

In some cases, it might be better to invest in big biotechnology companies such as Amgen and Gilead Sciences. Investing in biotechnology ETFs can be a good way to spread your risk around. Furthermore, the industry has quite a bit of potential. States often battle each other to draw biotechnology companies to their communities. Governments’ more lenient stances toward stem cell research can drive growth in the future. Biotechnology advances can lead to more efficient and stable sources or energy.

Also, gene-based drugs could replace their chemically formulated counterparts. In tough economic times, investment in  biotechnology stocks could serve as a smart defensive play against  the rest of the market because after all people get sick are are injured regardless of the economic climate. The biotech sector has a fairly low correlation with the healthcare sector, even though it is technically part of it.

Biotechnology ETFs You Can Invest In

There are several different options for investing in biotechnology ETFs. Each ETD differs in their holdings and the indexes that they follow. Each ETF has its pluses and its minuses and the market should be weighed as a whole.

  • iShares Nasdaq Biotechnology Trust (IBB) follows the Nasdaq Biotechnology Index. It holds the one of the largest number of stocks of any Biotechnology ETF. However, the fund uses a cap-weighted methodology to put most of its holdings at less than 1%. weight. It has an expense ratio of .48% and is very actively traded. 
  • HOLDRS Biotech ETF (BBH) is not a true ETF. It is considered a “grantor trust”. This means that it cannot change its underlying holdings except if corporate actions warrant it. Over time, this can produce  lopsided holding over time. 
  • SPDR S&P Biotech (XBI) follows the S&P Biotechnology Select Index. It maintains holdings in 25 biotechnology companies, held in equal rates. Its expense ratio is .35%, which is considered low. It is also highly diversified for a sector fund. 
  • First Trust Amex Biotechnology Trust (FBT) tracks the NYSE Arco Biotechnology Index. The fund holds 20 stocks that are equally weighted and rebalanced every quarter. The performances of the underlying stocks can vary dramatically, thus the weightings often change dramatically quarter by quarter.  Human Genome Sciences company comprises this index’s greatest holdings. Its expense ratio is a decent 0.60%.
  • Powershared Dynamic Biotech Portfolio follows domestic and foreign biotech companies. However, more than 3/4ths of its holdings are currently in United States based companies. Its expense ratio is 0.75%. The index is not generally well-regarded.
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