Making its debut on 06/23/2005, smart beta exchange traded fund PowerShares Dynamic Biotechnology & Genome Portfolio (PBE) provides investors broad exposure to the Health Care ETFs category of the U.S. equity market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
PBE is managed by Invesco Powershares, and this fund has amassed over $238.34 M, which makes it one of the average sized ETFs in the Health Care ETFs. PBE, before fees and expenses, seeks to match the performance of the Dynamic Biotechnology & Genome Intellidex Index.
This is comprised of stocks of 30 U.S. biotechnology and genome companies. These are companies that are principally engaged in the research, development, manufacture and marketing and distribution of various biotechnological products, services and processes and companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research.
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 0.58% for PBE, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 0.44%.
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.
This ETF has heaviest allocation in the Healthcare sector - about 100% of the portfolio.
When you look at individual holdings, Illumina Inc (ILMN) accounts for about 5.45% of the fund's total assets, followed by Vertex Pharmaceuticals Inc (VRTX) and Regeneron Pharmaceuticals Inc (REGN).
Its top 10 holdings account for approximately 45.9% of PBE's total assets under management.
Performance and Risk
The ETF has added roughly 3.16% so far this year and is up about 17.49% in the last one year (as of 04/12/2018). In the past 52-week period, it has traded between $41.34 and $54.07.
The ETF has a beta of 1.38 and standard deviation of 28.06% for the trailing three-year period, making it a high choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
PowerShares Dynamic Biotechnology & Genome Portfolio is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index and the iShares Nasdaq Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $4.65 B in assets, iShares Nasdaq Biotechnology ETF has $8.80 B. XBI has an expense ratio of 0.35% and IBB charges 0.47%.
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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ISHARES NDQ BIO (IBB): ETF Research Reports
SPDR-SP BIOTECH (XBI): ETF Research Reports
PWRSH-DYN BIO (PBE): ETF Research Reports
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
Illumina, Inc. (ILMN) : Free Stock Analysis Report
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
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