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Biotechnology ETFs took their lumps in 2009, eking out meager gains for the year, at best. Already in 2010, though, the sector could be on the precipice of a breakout year if things go its way. But which company will lead them all?

Picking the best companies out of many is a challenge in any sector, but it’s especially true of biotech. Many of the 160-or-so biotech companies are still awaiting profits while others are just upstarts with scant funding.

There are about 160 biotech companies trading on U.S. exchanges, according to Matthew McCall at Investopedia, making it hard to pick a winner out of so many.

Enter biotech ETFs: there’s no need to pick and choose, risk is mitigated and you can ride the fortunes of a promising sector instead of trying your luck with a single stock or two.

The two ETFs below, the most heavily traded of all biotech funds, track the same indexes with different allocations. XBI has less than 20% of its assets in the top five holdings, while IBB gives a heavy concentration of assets in their top five holdings, about 35% total.

  • SPDR S&P Bioetch (NYSEArca: XBI): up 11% year-to-date

  • iShares Nasdaq Biotechnology (NASDAQ: IBB): up 7.9% year-to-date

Source: Mitigating Biotech Risk With ETFs