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 volatility of the sector. Despite this there are sound investments to make when it comes to biotechnology ETFs.
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 this in mind, here’s a brief look at the five top biotechnology ETFs and their holdings, according to ETFdb.com, for investing consideration. All biotechnology ETFs listed had assets over US$300 million at the time of publication, and all numbers and figures were current at that time.
1. iShares NASDAQ Biotechnology ETF (NASDAQ:IBB)
Market capitalization: US$7.23 billion
The iShares NASDAQ Biotechnology ETF was started on February 5, 2001 and tracks 213 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 9.17 percent weight; Amgen (NASDAQ:AMGN), weighted at 7.36 percent; and Vertex Pharmaceuticals (NASDAQ:VRTX), coming in at a weight of 7.33 percent.
2. SPDR S&P Biotech ETF (ARCA:XBI)
Market capitalization: US$3.98 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, including these top three in the market: Invitae (NYSE:NVTA), which has a 2.22 percent weighting on the index; Regeneron Pharmaceuticals (NASDAQ:REGN) weighted at 2.17 percent; and United Therapeutics (NASDAQ:UTHR), representing a 2.13 weight.
3. First Trust Amex Biotechnology Index (ARCA:FBT)
Market capitalization: US$1.75 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 31 holdings; this means they are largely equally weighted and that the assets are relatively balanced. Its top three holdings are the large-cap companies Gilead Sciences at a 4.13 percent weighting; Regeneron Pharmaceuticals, representing a 4 percent weight; and Biogen (NASDAQ:BIIB), coming in at a 3.89 percent weight.
4. ARK Genomic Revolution Multi-Sector ETF (ARCA:ARKG)
Market capitalization: US$443.95 million
The ARK Genomic Revolution Multi- ETF came into existence on October 31, 2014, and tracks 35 holdings. Similarly 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.
The top two companies in the ETF are Invitae at 9.66 percent and Illumina (NASDAQ:ILMN) at 18.49 percent — while CRISPR Therapeutics (NASDAQ:CRSP) holds the third spot with a 8.47 percent weight in the fund.
5. Direxion Daily S&P Biotech Bull 3x Shares (ARCA:LABU)
Market capitalization: US$368.38 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. Out of 123 holdings, its top three are Invitae, which has a 2.44 percent weight, Regeneron Pharmaceuticals, with a weight of 2.39 percent and United Therapeutics, holding a weight of 2.34 percent.
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This is an updated version of an article first published on the Investing News Network in 2016.
Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.