Is First Trust NYSE Arca Biotechnology ETF (FBT) a Strong ETF Right Now?

Designed to provide broad exposure to the Health Care ETFs category of the market, the First Trust NYSE Arca Biotechnology ETF (FBT) is a smart beta exchange traded fund launched on 06/19/2006.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by First Trust Advisors. FBT has been able to amass assets over $1.15 billion, making it one of the larger ETFs in the Health Care ETFs. FBT seeks to match the performance of the NYSE Arca Biotechnology Index before fees and expenses.

The NYSE Arca Biotechnology Index is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Annual operating expenses for FBT are 0.56%, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For FBT, it has heaviest allocation in the Healthcare sector --about 100% of the portfolio.

Taking into account individual holdings, Grifols, S.a. (adr) (GRFS) accounts for about 4% of the fund's total assets, followed by Ultragenyx Pharmaceutical Inc. (RARE) and Iqvia Holdings Inc. (IQV).

FBT's top 10 holdings account for about 36.19% of its total assets under management.

Performance and Risk

Year-to-date, the First Trust NYSE Arca Biotechnology ETF has lost about -4.45% so far, and is down about -4.13% over the last 12 months (as of 04/09/2024). FBT has traded between $132.50 and $160.46 in this past 52-week period.

The fund has a beta of 0.67 and standard deviation of 21.86% for the trailing three-year period, which makes FBT a high risk choice in this particular space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust NYSE Arca Biotechnology ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index and the iShares Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $7.03 billion in assets, iShares Biotechnology ETF has $7.32 billion. XBI has an expense ratio of 0.35% and IBB charges 0.45%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports

iShares Biotechnology ETF (IBB): ETF Research Reports

Grifols, S.A. (GRFS) : Free Stock Analysis Report

Ultragenyx Pharmaceutical Inc. (RARE) : Free Stock Analysis Report

SPDR S&P Biotech ETF (XBI): ETF Research Reports

IQVIA Holdings Inc. (IQV) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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

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