Even though the ETF explosion which we have seen in the lot of other sectors has not quite reached Biotech sector, there still are some Biotech ETFs on the market out there (mainly issued by iShares, State Street, PowerShare and First Trust).
Being one of the most innovative technology sectors out there Biotechnology carries also huge amount of risk and expenses. So it would be fair to say it is not for everyone.
Biotech ETFs invest in huge variety of products, solutions and innovations (some of which dont even have names yet). But if you are still in doubt what it means exactly take this definitaion:
“Biotechnology is a use of living organisms or their products to modify human health and the human environment.”
Currently there are about 6 Biotech ETFs differing in holdings and indexes
iShares Nasdaq Biotech ETF (IBB): IBB is known as the most liquid biotech ETF. It is also the largest ETF with over $1.3 billion in assets. It looks towards market-cap weighted companies. IBB has assets in almost 170 companies with major holdings in Amgen, Gilead Sciences and Celgene. It has an expense ratio of 0.48% and is more stable than any other biotech ETF.
SPDR S&P Biotech ETF (XBI): XBI looks towards the equal-weighted index. it has almost $428 million in assets with holdings in 28 companies with high level of diversification. Major holdings are in Myriad Genetics, Cepheid and Pharmion. It has an expense ratio of 0.35% making it a good choice for biotech players.
First Trust NYSE Arca Biotechnology ETF (FBT): FBT is an equal dollar weighted index ETF and has holdings in companies that are primarily involved in biological processes to develop products and services. It holds almost 20 securities with major holdings in Humand Genome Sciences, Vertex Pharmaceutical, Biogen and Celgene. It has an expense ratio of 0.60%. This ETF like the XBI focus more on smaller and volatile firms and allocates lesser portion to the large firms so it is more appropriate for risk tolerant investors.
PowerShares Dynamic Biotechnology & Genome Portfolio (PBE): PBE uses a quantitative driven index with over $200 million in assets. It has holding in 30 biotech companies with major holdings in Imclone Systems, Gilead Sciences and Amgen. The quantitative index allows the smaller firms to control the performance of the ETF that is why PBE has more holdings in smaller firms. It has an expense ratio of 0.63%.
PowerShares Global Biotech Portfolio (PBTQ): This ETF has holdings in both domestic and foreign biotech companies but major holdings in US based firms. It has an expense ratio of 0.75% with $3.83 million in assets. It has major holdings in CSL Ltd, Celgene, Gilead Sciences and Genzyme.
BioTech HOLDRS (BBH): The stock holdings in this ETF rarely change and it focuses on market-cap weighted companies. It has stocks in almost 18 companies with major holdings in Genentech, Biogen, Amgen and Gilead Sciences. This ETF is good for investors who are looking to bet on bigger names in the biotech industry but it is also too concentrated. So the ETF can suffer from structural problems.
