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The 5 Biggest Biotech ETFs


The quest to live a healthy life has inspired breakthroughs in the field of medical sciences for decades now. However, despite leaps in progress, gaps remain. Chronic diseases continue to be the leading cause of death and disability worldwide. By 2020, it is estimated that they will account for almost 73% of all deaths and 60% of the global burden of disease, as per a report by the World Health Organization (WHO). The pioneering advances in biotechnology have a crucial role to play in overcoming the rising burden of chronic diseases.

While biotechnology holds great potential, there are a number of challenges, which companies operating in this space continue to combat; expensive and extensive research processes with low success rate, a long journey between drug discovery and use as prescription, regulatory compliance and approvals, among others.

For investors, these challenges faced by biotechnology companies can be negated to some extent by using exchange traded funds (ETFs) as an investment vehicle instead of individual stocks. ETFs provide a portfolio of diverse stocks within the broader category at low costs and high convenience.

The future looks bright for the global biotechnology market, because it is estimated to reach $775 billion by 2024, growing at a compounded annual growth rate of 9.9% during 2018-2024.

Here's a look at the leading exchange traded funds from this segment (based on assets under management):

Launched in February 2001, iShares Nasdaq Biotechnology ETF (IBB) is the biggest biotechnology exchanged traded fund in terms of assets. The fund tracks the Nasdaq Biotechnology Index which is a modified market capitalization weighted index. The allocation to holdings in its portfolio is based on their respective market capitalization -- that is, companies with a bigger market cap will automatically account for a bigger allocation.

The fund is suitable for investors looking to invest primarily in large-cap universe of companies which are engaged in discovery and development of new treatments and cures for diseases.

The scheme has a portfolio of around 220 stocks, primarily from the biotechnology segment (80%) with some exposure to life sciences tools and services, pharmaceuticals, health care equipment, distributors and suppliers. The fund has $7.27 billion as assets under management, an expense ratio of 0.47% and has delivered 9.57% year to date (YTD) returns. Its top ten holdings currently add up to 51% of the allocation and includes names such as:

  • Gilead Sciences
  • Amgen
  • Celgene
  • Vertex Pharmaceuticals
  • Illumina
  • Biogen
  • Alexion Pharmaceuticals
  • Regeneron Pharmaceuticals
  • Incyte
  • BioMarin Pharmaceutical

The next popular fund is the SPDR S&P Biotech ETF (XBI). With $4.21 billion assets under management, it is the second largest fund. Launched in 2006, the fund tracks the S&P Biotechnology Select Industry Index and has a portfolio of around 120 holdings. The fund is equally weighted and thus the weightage of holdings doesn't change based on their market capitalization, and thus companies with all sizes of market cap play an equally crucial role. The fund has a low concentration ratio with approximately 16% in the top ten stocks, which includes:

  • Array BioPharma
  • Sarepta Therapeutics
  • Invitae
  • Immunomedics
  • Bluebird Bio
  • FibroGen
  • Amicus Therapeutics
  • Exelixis
  • Seattle Genetics
  • Mirati Therapeutics

It has an expense ratio of 0.35% and has delivered 19.22% YTD returns.

Launched in 2006, First Trust Amex Biotechnology Index (FBT) is the third largest fund in this category. The fund tracks the NYSE Arca Biotech Index which is an equally weighted index comprising of 30 companies. It has $2.86 billion as assets under management and an expense ratio of 0.56%. It has posted YTD returns of 10%. In addition to the U.S., it provides a small exposure to Spain and Netherlands. With an equally weighted index to track, the fund provides a multicap exposure within the sector. The top ten holdings add up to around 38%, and include:

  • Sarepta Therapeutics
  • Exact Sciences
  • Grifols
  • IQVIA
  • Neurocrine Biosciences
  • Bio-Techne
  • Seattle Genetics
  • Incyte
  • ACADIA Pharmaceuticals
  • Gilead Sciences

The next two funds are ARK Genomic Revolution ETF and VanEck Vectors Biotech ETF:

ARK Genomic Revolution ETF (ARKG) is an actively managed ETF focused on companies that are relevant to genomics revolution such as healthcare, information technology, materials, energy and consumer discretionary. The fund was launched in 2014 and maintains a portfolio of 30-50 stock holdings. It has $454.31 million as assets under management, an expense ratio of 0.75% and has delivered 39.91% YTD returns. The top ten holdings add up to 60% of the portfolio and includes:

  • Invitae
  • Illumina
  • Intellia
  • CRIPRS Therapeutics
  • Editas Medicine
  • Veracyte
  • Teladoc Health
  • Lovance Biotherapeutics
  • NanoString Technologies
  • Collectis

Launched in 2011, VanEck Vectors Biotech ETF (BBH) tracks the MVIS US Listed Biotech 25 Index which is a composition of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment. The fund has posted 13.33% YTD returns and has $363.60 million as assets under management with 0.35% as the expense ratio. The fund has an allocation of around 58% in the top ten stocks, which include:

  • Amgen
  • Gilead
  • Celgene
  • Allergan
  • IQVIA
  • Vertex Pharmaceuticals
  • Biogen
  • Incyte
  • Exact Sciences
  • Alexion Pharmaceuticals

In addition, Invesco Dynamic Biotechnology & Genome ETF (PBE) and ALPS Medical Breakthrough ETF (SBIO) are the next two ETFs in line with $240.03 million and $187.73 million as assets under management.

If leveraged and Inverse ETFs are included then Direxion Daily S&P Biotech Bull 3x Shares (LABU) and ProShares Ultra Nasdaq Biotechnology (BIB) are two popular ETFs with $567.645 million and $203.19 million as assets under management. These funds seek 2x or 3x times of returns of the underlying index on a daily basis and fall in much riskier bracket.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , ETFs
Referenced Symbols: IBB , XBI , FBT , ARKG , BBH



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