Finding the best ETF to buy now is a simple task, really. Investors just need to identify an exchange-traded fund that is outperforming, offers high growth potential and that has a strong megatrend behind it that will result in success going forward.
Enter the SPDR S&P Biotech (ETF) (NYSEARCA:XBI).
This sector fund is focused on the reliable growth of healthcare — a segment of the market every investor should be overweight in. For starters, there is the built-in growth thanks to the demographic push of baby boomers who need more care as they age in the U.S., and continued expansion of modern medicine into emerging markets.
There also is built-in stability because patients will cut back on just about any other spending before they forgo drugs or therapies that extend their lives and reduce their pain.
This biotech ETF is admittedly smaller than some of the other healthcare funds that are out there, both in its total assets under management and the companies that it invests in. As the name implies, this biotech ETF focuses on development-stage companies that are working on the next generation of medical treatments instead of entrenched big pharma companies.
But while that’s risky, the XBI is very high growth as a result.
Consider this ETF is up about 15% year-to-date to trounce the major indexes and, longer term, the XBI is up about 66% since January 2014 vs. just 15% for the S&P 500 in the same period.
Part of the reason I like the XBI fund is because of outperformance and its focused play on high-growth healthcare, but the mechanics of this ETF are also attractive. The XBI is much better diversified within biotech than other funds. Consider competing biotech fund, the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) that has more than 25% of its assets in its top two positions right now.That’s in contrast to the XBI that has no more than 2.1% weighting for a single stock.
Equally compelling is that among its top five holdings, the largest company has a market cap of just $6.6 billion via Opko Health Inc. (NYSE:OPK). Contrast that with the IBB, which has two of its top five holdings as $100 billion-plus corporations in Amgen, Inc. (NASDAQ:AMGN) and Gilead Sciences, Inc. (NASDAQ:GILD). Hardly sounds like an aggressive biotech fund full of startups to me.
To top it off, the SPDR Biotech ETF is also cheaper than the competing iShares biotech fund at just 0.35% or $35 annually on $10,000 invested.
If you want exposure to the growth in healthcare, this fund is perfect — even if it is a bit more aggressive than some others. The diversification of the XBI fund allows you to catch enough winners to offset any holdings that many crash, and the long-term performance speaks for itself.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.