Is SPDR S&P Biotech ETF (XBI) a Strong ETF Right Now?
Designed to provide broad exposure to the Health Care ETFs category of the market, the SPDR S&P Biotech ETF (XBI) is a smart beta exchange traded fund launched on 01/31/2006.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix 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
Because the fund has amassed over $7.69 billion, this makes it one of the largest ETFs in the Health Care ETFs. XBI is managed by State Street Global Advisors. This particular fund seeks to match the performance of the S&P Biotechnology Select Industry Index before fees and expenses.
The S&P Biotechnology Select Industry Index represents the biotechnology sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Biotech Index is a modified equal weight index.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for XBI are 0.35%, which makes it one of the cheaper products in the space.
XBI's 12-month trailing dividend yield is 0.16%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.
Taking into account individual holdings, Intellia Therapeutics Inc. (NTLA) accounts for about 1.19% of the fund's total assets, followed by Anavex Life Sciences Corp. (AVXL) and Beam Therapeutics Inc. (BEAM).
The top 10 holdings account for about 8.72% of total assets under management.
Performance and Risk
So far this year, XBI has lost about -4.80%, and it's up approximately 16.01% in the last one year (as of 11/04/2021). During this past 52-week period, the fund has traded between $118.69 and $173.99.
The fund has a beta of 1.13 and standard deviation of 34.17% for the trailing three-year period, which makes XBI a high risk choice in this particular space. With about 200 holdings, it effectively diversifies company-specific risk.
Alternatives
SPDR S&P Biotech ETF 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.
First Trust NYSE Arca Biotechnology ETF (FBT) tracks NYSE Arca Biotechnology Index and the iShares Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. First Trust NYSE Arca Biotechnology ETF has $1.84 billion in assets, iShares Biotechnology ETF has $10.56 billion. FBT has an expense ratio of 0.55% 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.
Bottom Line
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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SPDR S&P Biotech ETF (XBI): ETF Research Reports
iShares Biotechnology ETF (IBB): ETF Research Reports
Beam Therapeutics Inc. (BEAM) : Free Stock Analysis Report
Anavex Life Sciences Corp. (AVXL) : Free Stock Analysis Report
First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
Intellia Therapeutics, Inc. (NTLA) : Free Stock Analysis Report
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