3 Biotech ETFs Overdue for a Bounce
Growth-focused investors may wish to set their sights on the hard-hit biotech stocks scene as rates begin to retreat, negative momentum settles and the industry catches a bit of a break for once. Of course, to get a higher chance at outsized gains, one must also have a high risk tolerance and a long-enough investment horizon. Also, when the tides get rough, one needs the confidence and conviction to hang on (or buy on dips).
Indeed, the turbulent seas of the higher-growth corners of the biotech markets will not be for everyone. The potential rewards of owning shares of a firm that’s discovered a breakthrough treatment or drug could be considerable. At the same time, if a promising treatment or medication ends up flopping amid clinical trials, the downside could be horrendous.
The good news is that beginner investors can balance the risks with the benefits of advancements in the space. These three biotech ETFs have terrific value as the biotech scene recovers from its painful setback in 2021.
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iShares Biotechnology ETF (IBB)
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The iShares Biotechnology ETF (NASDAQ:IBB) is a biotech ETF that fits most investors due to its higher concentration in established industry players via the Nasdaq exchange. It should be no surprise to see the IBB is the most popular of the biotech ETF batch.
Indeed, the IBB’s greater focus on larger-cap blue chips within the biotech universe and the more “hands-off” passive approach to the fund allow for a relatively reasonable management expense ratio (MER) of 0.45%.
The IBB ETF consists of large-cap biotech darlings that have established themselves over the years. Some of these darlings actually look quite cheap relative to their promising growth pipelines and areas of expertise. Gilead (NASDAQ:GILD), Regeneron (NASDAQ:REGN) and Amgen (NASDAQ:AMGN) represent a relatively large slice of the overall IBB pie, with a weighting of around 8% each.
Perhaps the biggest reason to opt for IBB over other biotech ETFs is that the top constituents are profitable (the same cannot be said for some of the other biotech ETFs out there!).
Large-cap exposure, profitability and growth make for a rather stacked ETF that should be a top pick for biotech investors this spring.
SPDR S&P Biotech ETF (XBI)
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If you seek higher growth and have a risk appetite, the SPDR S&P Biotech ETF (NYSEARCA:XBI) may be more your style. Shares of the XBI ETF are still down more than 43% from its early 2021 peak. Meanwhile, the less-choppy IBB is down around 22% from its own 2021 all-time high.
While both biotech ETFs felt the pressure from the 2021-22 sell-off, the XBI took way more of a hit. As the tides turn in the biotech scene, however, the XBI faces more upside potential if biotech is, in fact, on the cusp of its next bull run.
Like the IBB, the XBI incorporates a passive management approach, which entails a low gross expense ratio of 0.35%. But what’s causing the increased choppiness and risk profile if it’s not actively wrong managers to blame?
The XBI ETF has less weight in the large-caps and more on the mid-caps and emerging firms in the space. Undoubtedly, odds are you’ve never heard of most of the constituents, most of which contribute a weighting of less than 2% of the ETF’s weight.
Suppose you seek greater exposure to smaller firms that stand to explode onto the biotech scene (think of firms like Moderna (NASDAQ:MRNA), which were relatively unknown prior to the COVID-19 pandemic). In that case, the XBI looks more of an intriguing growth bet than the IBB.
ARK Genomic Revolution ETF (ARKG)
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Finally, we have the ARK Genomic Revolution ETF (CBOE:ARKG) for aggressive-growth investors seeking to gain more of an active or “hands-on” approach to investment management. The MER is quite high at 0.75%, but that’s the price of admission if you want the expertise and talent of Cathie Wood and her team over at ARK Invest. If you believe in Wood and the themes she’s most bullish on, I’m not against keeping tabs on the ARKG ETF at these depths.
Wood seeks to position her fund to profit from some of the most impressive trends within the corner of genomics. Most notably, ARKG invests in companies exposed to fields such as CRISPR, stem cells and molecular diagnostics. Undoubtedly, some pretty incredible technologies have profound game-changing potential.
Unsurprisingly, CRISPR Therapeutics (NASDAQ:CRSP) is the top holding, with a weighting of around 7.8% at the time of writing.
Shares of CRSP and many other ARKG holdings have been through the wringer in recent years. As a result, ARKG shares are down almost 75% from their early 2021 peak. Indeed, the ARKG fund stands out as the most aggressive, growthiest and choppiest of the trio of biotech ETFs in this piece.
If you seek maximal growth and potentially deep value following the vicious crash of 2021, ARKG may be worth watching. Personally, ARKG is too spicy for my investing stomach.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.
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