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A Guide to Biotech ETF Investing

Sweta Jaiswal, FRM

The biotech industry has kept its promise of solid returns so far. The rally in some major biotechnology indexes reflects the same. In this context, the NASDAQ Biotechnology Index has returned 23.1% year to date. Following the trend, S&P Biotechnology Select Industry Index has returned around 29.5% (read: Why Biotech ETFs Surged in Monday's Trading Session).

With time, biotechnology is emerging as a favored sector for investors with some risk appetite.

Trends Favoring Biotech

Increasing mergers and acquisition (M&A) deals, growing AI dominance and favorable regulatory tidings continue to work in favor of the biotech market. The sector has been benefitting from a flurry of positive news, including trial results and deal activities.

M&As are dominating the sector as sluggishness in mature products has forced companies to explore acquisitions to bolster their pipelines.Several other large-cap pharma as well as bigger biotech companies are entering collaboration deals with smaller ones to boost their pipeline. Furthermore, in-licensing deals are consistently rising with bigwigs partnering with smaller and mid-sized players that own promising mid-to-late stage pipeline candidates or interesting technology. Amgen recently completed the buyout of psoriasis and psoriatic arthritis drug Otezla from Celgene for $13.4 billion in cash or around $11.2 billion net of anticipated future cash tax benefits. Moreover, Bristol-Myers Squibb has completed the acquisition of Celgene Corp for $74 billion in a cash-and-stock deal. It is considered to be one of the biotech industry’s largest deal of the past decade. Furthermore, Swiss drugmaker Novartis AG recently announced plans to buy cholesterol drug developer, The Medicines Company, for $9.7 billion. The acquisition will give Novartis access to Medicines Co.’s near-to-market heart drug — inclisiran.

The companies within the biotech sector gain majorly from positive pipeline-related advancements. The space has seen a series of developments so far in 2019. Moreover, biotech bigwigs are increasingly focusing on a few drug categories like biosimilars, neurological disorders, autoimmune diseases and gene therapies. In fact, per an article on InvestingNews.com, the FDA is increasingly encouraging companies to adopt means to develop gene therapy-related products.

Here, we have highlighted the 10 most popular biotech ETFs for investors seeking to benefit from the strengthening biotechnology market.

iSharesNasdaq Biotechnology ETF IBB

This fund seeks to provide exposure to U.S. biotechnology stocks and tracks the NASDAQ Biotechnology Index. It comprises 215 holdings. It has AUM of $7.83 billion and charges a fee of 47 basis points a year. The fund trades in average daily trading volume of 2.4 million shares and has gained 23% year to date (read: Top-Ranked ETFs That Crushed the Market in a Month).

SPDR S&P Biotech ETF XBI

The fund seeks daily investment results, before fees and expenses, which match the S&P Biotechnology Select Industry Index. It holds about 115 securities in its basket. Its AUM is $4.34 billion and expense ratio, 0.35%. The fund trades in average daily trading volume of 4.4 million shares and has gained 28.3% year to date (read: Healthcare ETFs Win in October: Here's Why).

First Trust Amex Biotechnology Index FBT

The fund measures 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. It holds about 31 securities in its basket. Its AUM is around $1.78 billion and expense ratio is 0.57%. The fund trades in average daily trading volume of around 172,000 shares and has gained 17.1% year to date.

ARK Genomic Revolution Multi-Sector ETF ARKG

This is an actively-managed ETF focusing on companies likely to benefit from the extension and enhancement of the quality of human and other life by incorporating technological and scientific developments plus improvements and advancements in genomics into their business. The fund holds 38 stocks in its basket. It charges 0.75% in expense ratio and has accumulated $465.6 million in its asset base. The fund trades in average daily trading volume of around 120,000 shares and has gained 44.7% year to date (read: ETFs to Gain From the Booming Genomics Market).

VanEck Vectors Biotech ETF BBH

The underlying MVIS US Listed Biotech 25 Index tracks the overall performance of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment. It holds about 24 securities in its basket. Its AUM is $371.9 million and expense ratio is 0.35%. The fund trades in average daily trading volume of around 14,000 shares and has gained 27.5% year to date.

Invesco Dynamic Biotechnology & Genome ETF PBE

This fund follows the Dynamic Biotech & Genome Intellidex Index. The index comprises companies that are majorly engaged in the research, development, manufacturing and marketing plus distribution of various biotechnological products, services and processes and companies that gain significantly from scientific and technological advances in biotechnology and genetic engineering and research. The fund holds 28 stocks in its basket. It has managed $234.3 million in its asset base. Expense ratio is at 0.57%. The fund trades in average daily trading volume of around 12,000 shares and has gained 17.8% year to date.

ALPS Medical Breakthroughs ETF SBIO

The fund seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index, the S-Network Medical Breakthroughs Index. The product charges 50 basis points in fees per year from investors and holds 77 stocks in its basket. It has AUM of $193 million in its asset base. The fund trades in average daily trading volume of around 34,000 shares and has gained 40.4% year to date (read: Russell 2000 Hits New 1-Year High: 5 Best-Performing ETFs).

Principal Healthcare Innovators Index ETF BTEC

This fund offers access to early-phase companies developing treatments for conditions like migraines, Crohn’s disease, multiple sclerosis, diabetes and other illnesses by tracking the Nasdaq Healthcare Innovators Index. It holds 188 stocks in its basket. BTEC charges 42 bps in annual fees. The product has accumulated $59.3 million in its asset base. The fund trades in average daily trading volume of around 1,900 shares and has gained 35.7% year to date (read: Biotech ETFs Surge on a Flurry of Positive News).

The Cancer Immunotherapy ETF CNCR

This ETF offers exposure to a basket of companies that develop therapies to treat cancer by harnessing the body's own immune system. Holding 26 stocks in its basket, it has AUM of $38 million. The product charges 79 bps in annual fees. The fund trades in average daily trading volume of around 9,400 shares and has gained 23.7% year to date (read: Healthcare Drives Wall Street: 5 Soaring ETFs & Stocks).

Virtus LifeSci Biotech Products ETF BBP

The ETF follows the LifeSci Biotechnology Products Index, which measures the performance of biotechnology companies with at least one drug therapy approved by the FDA. Holding 39 stocks, the product has moderate concentration across components. The product has accumulated AUM of about $28.3 million and charges 79 bps in fees per year. The fund trades in average daily trading volume of around 3,100 shares and has gained 26% year to date.

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ALPS Medical Breakthroughs ETF (SBIO): ETF Research Reports
 
Virtus LifeSci Biotech Products ETF (BBP): ETF Research Reports
 
Principal Healthcare Innovators Index ETF (BTEC): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
SPDR S&P Biotech ETF (XBI): ETF Research Reports
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
First Trust NYSE Arca Biotechnology Index Fund (FBT): ETF Research Reports
 
Loncar Cancer Immunotherapy ETF (CNCR): ETF Research Reports
 
Invesco Dynamic Biotechnology & Genome ETF (PBE): ETF Research Reports
 
ARK Genomic Revolution ETF (ARKG): ETF Research Reports
 
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