While the broader market has picked up its pace, the biotechnology sector has not seen a similar surge in performance. Still, investors should keep in mind the various biotech exchange traded fund plays to stay positioned for a resurgence in the sector.
Currently, the biotech industry is full of fast-growing and very profitable companies; however, the sector is lagging behind U.S. equities as a whole, remarks Olivier Ludwig for IndexUniverse.
A majority of analysts believe that more pharma/biotech mergers are just right around the corner, which should attract more investment interest into the sector. Additionally, as we start making headway into the the area of genomics, biotechs will most likely start turning new scientific breakthroughs into money-making products.
Ludwig elaborates on the biotechnology ETF choices that are currently available to investors:
- iShares Nasdaq Biotech ETF (IBB). IBB is the oldest, largest and most liquid biotech ETF on the market, with $1.3 billion under management. The fund leans toward market-cap weighted companies, which should make the ETF more stable than other funds. Olivier also notes that IBB will be a good choice for any big bio/pharma mergers that could be coming.
- SPDR S&P Biotech ETF (XBI). XBI has $428 million under management. The fund utilizes a equal-weight index strategy of 30 biotech companies. The ETF will hold an equal amount of large companies as well as small companies, which translates into increased risks and potentially higher rewards.
- First Trust AMEX Biotechnology Index ETF (FBT). Like XBI, FBT tracks equal-weighted index biotechs, but it only holds 20 securities and focuses on drug development companies. The fund has been the best performing biotech ETF, in large part because of its equal-weight strategy, which favors smaller companies.
- PowerShares Dynamic Biotechnology & Genome Portfolio (PBE). PBE has $200 million under management. The fund utilizes a quantitative-driven index that holds 30 biotech companies based on fundamental and technical measures, such as valuation and momentum. The ETF has frequent turnovers and leans toward small-cap companies.
- Biotech HOLDRs (BBH). BBH, like other HOLDRs, is unable to rebalance its portfolio. The fund has a large concentration in certain stocks, which can lead to strong performances. HOLDRs are also traded in 25-share increments.