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Biotech sector ETFs have seen recent outperformance primarily due to recent M&A activity particularly with Human Genome Sciences (HGSI). Perhaps more importantly there exists the prevailing belief there will be more - not less - of this activity. It's cheaper for large pharmaceutical companies to buy biotech firms with new products in advanced stages than developing their own internally.

Another more peculiar observation is often that the biotech sector can rally when other earnings driven sectors suffer. This is because investors in the sector are more motivated by hopes for future product development than current earnings. Breakthroughs in new product development may be the best new healthcare system available for society overall.

The SPDR S&P Biotech ETF (NYSEARCA:XBI) and iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) are two ETF leaders in the area. XBI was issued in January 2006. Assets under Management equal over $500 million and average daily trading volume is over 200K shares. The expense ratio is .35%.

IBB was issued in February 2001. Assets under Management equal $1.8 billion and average daily trading volume is over 500K shares. The expense ratio is .48%.

Source: Biotech ETFs In Focus: XBI Vs. IBB