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Biotech ETF Rallies Over 30% as Cash Tumbles In


The iShares Biotech ETF (IBB) is up more than 30% so far in 2013 and other exchange traded funds tracking the sector are raking in money are investors chase the hot performance.

Other funds in the category include SPDR S&P Biotech ETF (XBI), First Trust AMEX Biotechnology Index Fund (FBT), Market Vectors Biotech ETF (BBH) and PowerShares Dynamic Biotechnology & Genome Portfolio (PBE).

Chris Flood for the Financial Times reports that biotech ETFs have gathered net inflows of $545.7 million in 2013, up about 43% from all of last year.

“The scale of inflows has prompted concerns that the sector’s rally is being fuelled by speculative buying. However, there have been notable differences in both the performances of the ETFs in this sector and their success in attracting inflows,” according to the report.

For example, the largest fund, IBB, has gained 32.3% year to date, while XBI is up 24.9%, according to Morningstar data. [Biotech ETFs in ‘Stealth’ Bull Market]

The performance disparity is a reminder that investors need to understand how an ETF’s tracking index works before buying. For example, XBI follows an equal-weighted benchmark, while IBB weights individual stocks by their market cap. Therefore, XBI allocates more to smaller stocks in the biotech sector.

IBB holds about $3.2 billion of assets, while XBI controls $880 million. IBB has seen year-to-date inflows of $347 million compared with $124 million for XBI, according to IndexUniverse data.

iShares Biotech ETF

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.