A New Biotech ETF Gets Thematic

The worlds of biotechnology and thematic exchange traded funds (ETFs) got a little larger Tuesday with the debut of the Global X Genomics & Biotechnology ETF (GNOM).

GNOM, which follows the Solactive Genomics Index, is the second ETF with a focus on the fast-growing genomics market and the first passively managed fund in this space. Typically, the healthcare sector is viewed as a defensive group, but there are segments of this sector with disruptive and transformative qualities.

That includes genomics, itself a sprawling corner of the broader biotechnology space. Underscoring GNOM's potential utility for investors looking to wade into the genomics arena, the fund's 40 holdings run the gamut of computational genomics, development of genetic therapies, gene editing, genomic sequencing and more.

Data confirm that these market niches are growing at rapid rates. Take the case of genomic sequencing, a field where scientists determine the order of a being's DNA sequence.

“Estimates suggest that the global DNA sequencing market was valued at $6.2 billion in 2017 and is expected to reach $25.5 billion in 2025, with a compound annual growth rate (CAGR) of 19%,” according to Global X research.

How GNOM Fits In A Portfolio

Thematic ETFs are often seen as tactical plays. Many of these funds carve out niches in traditional sectors, such as financial services, healthcare and technology, in an effort to focus on fast-growing opportunities that are not always adequately represented in traditional sector and industry funds.

Advisors and investors can opt to pair thematic ETFs with standard sector fare as complementary positions when the thematic fund does not offer significant overlap with the established sector play.

In the case of the new GNOM, 80% of its 40 holdings also reside in the iShares Nasdaq Biotechnology ETF (IBB), which tracks the Nasdaq Biotechnology Index. While that may seem like a large percentage, what is more important is the overlap by weight between GNOM and the Nasdaq Biotechnology Index. As the chart below indicates, that figure is modest, indicating GNOM can be paired with a standard biotechnology fund.

(Courtesy: ETF Research Center)

The top 10 overlapping holdings between the new GNOM and IBB, the largest biotechnology by assets, have overlap weights ranging from 0.50% to 4.10%, according to the ETF Research Center.

Bottom Line

There is no denying that GNOM is a new ETF and there is also no denying that many advisors and investors often shy away from new ETFs simply because of those funds' rookie status, though some recent data points suggest ETF users are warming to the idea of embracing newer funds.

Time will tell if GNOM rapidly captures investors' attention (and assets), but the genomics ETF has some advantages, including its exposure to markets such as gene editing and CRISPR. The first human CRISPR trial commenced earlier this year.

“Estimates suggest the gene editing market should reach $7.5 billion by 2024, up from $3.0 billion in 2017 with a CAGR of 14.5%,” according to Global X. “This number is expected to grow significantly if the treatment methods tested in clinical trials receive positive results and regulatory approval.”

Additionally, GNOM's fee could prove to be an advantage. At 0.68% per year, or $68 on a $10,000 investment, GNOM is pricier than many established biotech ETFs, but that fee compares favorably to its most direct competitor as well as several other thematic biotech funds.

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

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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