In non-technical terms, 2019 was a weird year for biotechnology stocks and the related exchange traded funds (ETFs). For instance, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) joined its healthcare peers in scuffling through much of the first nine months of the year, trailing broader benchmarks like the S&P 500.
The fourth quarter has been a different story. IBB, the largest biotech ETF by assets, was up 16.65% since Oct. 1, pushing its 2019 year-to-date gain to 25%. That after months of investors pulling money from actively managed biotech funds. That situation is starting to correct as well, as data out last month indicated investors are warming to biotech assets again.
There are other reasons to consider biotech ETFs with 2020 looming. “Approvals from the Food & Drug Administration are coming through above the average annual rate, the valuation of large-cap biotechs are attractive, and there have been significant mergers and acquisitions in past years,” according to Barron’s.
With those factors in mind, let’s have a look at a trio of the best biotech ETFs on the market today.
ARK Genomic Revolution ETF (ARKG)
Expense ratio: 0.75% per year, or $75 on a $10,000 investment.
The ARK Genomic Revolution ETF (NYSEARCA:ARKG) has been immune to the aforementioned healthcare sector lethargy in 2019 as the fund went higher by almost 40%. This isn’t a one-off event, either. Over the past three years, the actively managed ARKG is higher by 106.4% compared to 37.2% for the aforementioned IBB. In other words, ARKG does an excellent job of justifying its high fee.
As its name implies, ARKG isn’t a standard biotech ETF. Rather, it focuses on the fast-growing genomics market, including CAR-T, CRISPR and other spaces where stock picking can be tricky for ordinary investors.
“Geenomic sequencing is changing the way biological information is collected, processed, and applied. ARKG is focused on the disruptive innovations that are increasing precision, restructuring health care, agriculture, pharmaceuticals, and enhancing the quality of life,” according to ARK Invest.
ARKG can hold 30 to 50 stocks and currently is home to 38, including plenty of winners, some of the very recent variety, such as Organovo (NASDAQ:ONVO).
Last Monday, Organovo jumped 24.1% “after announcing it will merge with and operate as a division of Tarveda Therapeutics,” said ARK. “The transaction will combine Organovo’s proprietary 3D printing technology with Tarveda’s proprietary Pentarin miniature drug conjugates and two clinical programs for the treatment of solid tumor malignancies.”
Virtus LifeSci Biotech Clinical Trials ETF (BBC)
Expense ratio: 0.79%
The Virtus LifeSci Biotech Clinical Trials ETF (NYSEARCA:BBC) is an under-appreciated story among biotech ETFs, but that’s not preventing it from delivering jaw-dropping returns. On the back of a 28.31% gain in December, BBC closed 2019 higher by more than 62% year-to-date.
“The fund benefited from a busy month for biotech companies,” reports Bloomberg. “While Novartis’s $9.7 billion takeover of Medicines Co. boosted overall sentiment, stakes in ChemoCentryx Inc. and Karyopharm Therapeutics Inc. helped BBC outperform. ChemoCentry’s shares soared on positive data regarding a drug to treat an inflammation disease, while Karyopharm reported better-than-expected sales.”
This biotech ETF tracks the LifeSci Biotechnology Clinical Trials Index, “which tracks the performance of select clinical trials stage biotechnology companies,” according to Virtus.
Bottom line: BBC isn’t for the faint of heart, but it is one of the best biotech ETFs for aggressive, risk-tolerant investors.
Invesco Dynamic Biotechnology & Genome ETF (PBE)
Expense ratio: 0.57%
For investors who want access to some of the biggest biotech names with a weighting methodology beyond market cap, the Invesco Dynamic Biotechnology & Genome ETF (NYSEARCA:PBE) is a practical idea.
PBE, one of the older biotech ETFs on the market, follows the Dynamic Biotech and Genome Intellidex Index. That benchmark weights its 30 components by price momentum, earnings momentum, quality, management action, and value. PBE has been effective in limiting volatility relative to legacy, equal-weight and some cap-weighted biotech ETFs.
PBE’s overlap with competing funds, such as IBB, is relatively light so investors should expected substantial differences between this biotech ETF and rival products over long holding periods.
Overall, PBE’s surprising lineup (it’s home to pharmaceuticals stocks residing in the Dow Jones Industrial Average) make this is a biotech ETF for conservative investors.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
