by Alyssa Oursler | October 18, 2013 11:42 am
A biotech ETF is the best way for investors to bet on high-risk high-reward biotech stocks, for several reasons.
To start, making individual picks for biotech stocks is difficult, as one big drug development or disappointment can send shares soaring or sinking in the blink of an eye.
Meanwhile, biotech stocks are only a small slice of the broader healthcare pie. Biotech stocks make up only 18% of the holdings in the Health Care SPDR (XLV), for example. Nearly half of the ETF is composed of pharmaceuticals stocks.
Buying a biotech ETF solves both these problems. A biotech ETF gives investors much more direct exposure to biotech stocks … without the risk of putting all their eggs into just one or two baskets.
So, if you’re looking to jump into the sector but aren’t high on trying to guess on the next big medical breakthrough, here’s a look at the three best biotech ETF investments out there:
Total Assets Under Management: $4 billion
Expense Ratio: 0.48%
One biotech ETF worth your consideration is the iShares Nasdaq Biotech ETF (IBB). This fund has been around for more than a decade and has ample assets under management of $4 billion.
IBB is a pretty pure play on biotech stocks. Nearly 80% of the 120 holdings of iShares Nasdaq Biotech ETF are straight biotech stocks — and big ones at that. The average market cap for companies this biotech ETF? $13 billion.
Top holdings of the iShares Nasdaq Biotech ETF include big biotech stocks like Biogen (BIIB) and Celgene (CELG) with nearly 9% slices each. Behind them are Gilead Sciences (GILD) at 8.5% and Amgen (AMGN) at 8.1%.
This biotech ETF gives you big-name exposure to the sector at a reasonable expense ratio of 0.48%, or $48 annually for every $10,000 invested.
Total Assets Under Management: $1 billion
Expense Ratio: 0.35%
Another option in the biotech ETF universe is the cheaper SPDR S&P Biotech ETF (XBI), which boasts an expense ratio of just 0.35%.
For better or for worse, the SPDR S&P Biotech ETF is a smaller fund than the IBB. It has $1 billion in net assets, less than half the number of holdings and a much smaller average market cap for those biotech stocks.
The holdings in this completely pure biotech ETF boast an average market cap around $3 billion and are pretty evenly distributed. No holding makes up more than 3%.
The top three biotech stocks in this fund are Opko Health (OPK), Halozyme Therapeutics (HALO) and Sarepta Therapeutics (SRPT).
Total Assets Under Management: $432 million
Expense Ratio: 0.35%
If you’re looking for a big, concentrated biotech ETF investment, check out the Market Vectors Biotech ETF (BBH), which aims to track the largest, most liquid biotech stocks in the industry.
This biotech ETF only has 26 holdings currently, and its top 10 holdings make up 68% of the fund. Biotech stocks Gilead Sciences and Amgen take up 13.8% and 11.7% spots in the Market Vector Biotech ETF, and Celgene and Biogen are heavily held. Toss in Regeneron Pharmaceuticals (REGN) and Alexion Pharmaceuticals (ALXN), and you have more than half the fund’s weighting in just six stocks!
Another thing to note: The Market Vector Biotech ETF is relatively new, having launched in late 2011, but has improved more than 60% since inception. As of now, it has roughly $435 million in assets under management.
BBH also boasts an appealing expense ratio of just 0.35%.
As of this writing, Alyssa Oursler was long IBB.
Source URL: http://investorplace.com/2013/10/3-best-biotech-etf-investments/
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