For investors looking for less volatility compared to stocks, here’s an overview of the five largest biotechnology ETFs for consideration.
Investing in biotechnology companies can be a long road to gains given the sector’s volatility.
Even with a good understanding of the system, no one can predict which treatment, device or therapy will give the biggest return, which makes biotechnology ETFs (exchange-traded funds) a secure option.
ETFs are a safe route that can minimize losses while also benefiting from the profits of (often) hundreds of companies instead of focusing on the gains and losses of a single stock.
5 top biotechnology ETFs
With that in mind, here’s a brief look at the five top biotechnology ETFs by total assets. Data was sourced from ETFdb.com on April 24, 2020, and all data was current as of that time.
1. iShares NASDAQ Biotechnology ETF (NASDAQ:IBB)
Total assets: US$7.91 billion
The iShares NASDAQ Biotechnology ETF was started on February 5, 2001 and tracks over 200 holdings. According to its profile, the ETF is a diversified fund in that it provides exposure to biotechnology, pharmaceutical and life science tools and services. Its overarching investment goal is to track companies focused on these areas that trade on the NASDAQ.
While most of its holdings are large-cap biotech stocks — with 52 percent of the biotech stocks included falling into this category — mid-cap and small-cap biotech stocks account for 37 percent of the fund. Its top three holdings are: Gilead Sciences (NASDAQ:GILD) with a 9.14 percent weight; Amgen (NASDAQ:AMGN), weighted at 7.91 percent; and Vertex Pharmaceuticals (NASDAQ:VRTX), coming in at a weight of 7.76 percent.
2. SPDR S&P Biotech ETF (ARCA:XBI)
Total assets: US$4.53 billion
Established on February 6, 2006, the SPDR S&P Biotech ETF is a largely equally weighted fund that focuses mostly on biotech companies with a small mix of pharmaceutical companies. As noted by ETF.com, this ETF’s investment objective is small- and micro-cap companies, which makes the weight of each holding smaller than the holdings of other ETFs in this sector.
The SPDR S&P Biotech ETF has 123 holdings in its portfolio, with the top three included being: Moderna (NASDAQ:MRNA), which has a 3.5 percent weighting on the index; Exelixis (NASDAQ:EXEL), weighted at 2.63 percent; and Regeneron Pharmaceuticals (NASDAQ:REGN), representing a 2.46 percent weight.
3. First Trust Amex Biotechnology Index (ARCA:FBT)
Total assets: US$1.82 billion
The First Trust Amex Biotechnology Index entered the markets on June 23, 2006, and aims to track as closely as it can the NYSE Arca Biotechnology Index. Companies in this fund are generally involved in areas such as recombinant DNA technology, molecular biology, genetic engineering and genomics.
Companies in this ETF have a niche industry focus and the fund has only 30 holdings; this means they are largely equally weighted and that the assets are relatively balanced. The top three holdings of the fund are the following large-cap companies: Exelixis at a 4.49 percent weighting; Ultragenyx Pharmaceutical (NASDAQ:RARE), representing a 3.57 percent weight; and BioMarin Pharmaceutical (NASDAQ:BMRN), coming in at a 3.48 percent weight.
4. ARK Genomic Revolution Multi-Sector ETF (ARCA:ARKG)
Total assets: US$778.76 million
The ARK Genomic Revolution Multi- ETF came into existence on October 31, 2014, and tracks 36 holdings. Similar to the First Trust Amex Biotechnology Index, this ETF has a specific area of focus. Companies on the list develop products such as: CRISPR technology, bioinformatics, molecular diagnostics and stem cells.
5. Direxion Daily S&P Biotech Bull 3x Shares (ARCA:LABU)
Total assets: US$408.96 million
Founded on May 28, 2015, the Direxion Daily S&P Biotech Bull 3x Shares ETF is not your traditional ETF that mirrors an index. Instead, its goal is to obtain daily investment results of at least 300 percent of the S&P Biotechnology Select Industry Index.
Like the other ETFs on this list, companies in the Direxion Daily S&P Biotech Bull 3x Shares ETF have an equally weighted average. Of 122 holdings, its top three are: Moderna, which has a 3.73 percent weight, Exelixis, with a weight of 2.8 percent and Regeneron Therapeutics at a weight of 2.64 percent.
This is an updated version of an article first published by the Investing News Network in 2016.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.