Launched on 06/19/2006, the First Trust NYSE Arca Biotechnology ETF (FBT) is a smart beta exchange traded fund offering broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
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 $1.27 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.56% for FBT, making 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
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
FBT's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.
Looking at individual holdings, Exact Sciences Corporation (EXAS) accounts for about 4.82% of total assets, followed by Grifols, S.a. (adr) (GRFS) and Agios Pharmaceuticals, Inc. (AGIO).
FBT's top 10 holdings account for about 39.43% of its total assets under management.
Performance and Risk
So far this year, FBT has lost about -4.94%, and was up about 13.93% in the last one year (as of 09/27/2023). During this past 52-week period, the fund has traded between $131.98 and $165.37.
The ETF has a beta of 0.76 and standard deviation of 22.58% for the trailing three-year period, making it a high risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
First Trust NYSE Arca Biotechnology ETF is not a suitable option for investors seeking to outperform the Health Care ETFs segment of the market. Instead, there are other ETFs in the space which investors should 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 $5.67 billion in assets, iShares Biotechnology ETF has $7.08 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.
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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