First Trust's Biotech ETF: The Common Sense Approach

In a crowded ETF marketplace, First Trust’s stable of ETFs may not be getting due credit for a common sense approach to weighting companies in their ETF baskets. Take the Amex® Biotechnology Index Fund (FBT) ETF which contains 20 biotech companies. Rather than a fancy formula or conventional market value weighting, First Trust just weights them roughly equally. I have often thought that there is an opportunity for an ETF family that did this across the board. Especially in this uncertain sector, is it possible to predict the winners? The companies selected for the basket area cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.

FBT was launched last June at $20 at closed today at $22.30. Investors should watch this ETF and consider it as more conservative than market cap weighted competitors. I always have trouble getting over valuations in the biotech sector which of course always look expensive but the recent pullback may be an opportunity. The average company in the FBT basket is trading at 10 times sales and five times book. Below is this ETFs top holdings and chart.

Holdings Percent (%)

Gilead Sciences, Inc. (GILD): 5.93

Millipore Corporation (MIL): 5.86

Invitrogen Corporation (IVGN): 5.78

Affymetrix, Inc. (AFFX): 5.72

ImClone Systems Incorporated (IMCL): 5.37

Amylin Pharmaceuticals, Inc. (AMLN): 5.28

Millennium Pharmaceuticals, Inc. (MLNM): 5.24

Celgene Corporation (CELG): 5.15

Genentech, Inc. (DNA): 5.06

MedImmune, Inc. (MEDI): 5.05