Currently, there are only a handful of effective ETFs focused exclusively on biotechnology. Nevertheless, the sector contains companies that will probably produce more effective medical treatment and healthcare than all the insurance plans and HMOs combined. This is the next big thing for the human race as in the future immunization and cures for disease will allow people to live longer and healthier lives. As an anecdote, a very famous and successful heart surgeon told me a few decades ago that his profession would no doubt be obsolete someday due to advances in biotechnology.
Biotechnology companies are valued more for their future promise than current earnings and sales. This has always been the case making PEs sometimes very high and confusing more uninformed investors. At the same time, when there are clinical trial failures of new drugs or treatments the related company’s shares may plunge significantly. Successful results can lead to dramatic stock gains. One other little known trait is that when earnings from more conventional sectors struggle investors often turn to the biotech sector seeking better performance away from earnings. It may seem an odd pattern but it is something I’ve noticed over more than a few decades.
Investors may choose an appropriate ETF from the list below to best satisfy the need for index-based investments for their portfolios. For traders and investors wishing to hedge, leveraged (+2x) and inverse (-2x) ETFs are available from ProShares: Ultra Nasdaq Biotechnology (BIB) and Ultrashort Nasdaq Biotechnology (BIS); and given high correlations within the sector, they could be used universally over short periods of time. I urge you to do your homework before engaging in these ETFs.
I go more in depth about biotechnology ETFs in my latest ebook, “The Best ETFs: US Equities” where I handpick the best ETFs even further in the US Equities space in 26 subcategories, ranging from different market capitalizations and approaches, to sector and subsector-specific ETFs, to dividend and high yield dividend ETFs. This ebook is just the first in a series that aims to help you construct a comprehensive, well-balanced portfolio of ETFs from across the wide spectrum of markets and asset classes available. The next books in the series will focus on overseas ETFs, fixed income ETFs, alternative ETFs, and portfolio construction.
A few ETFs below feature a technical view of conditions from monthly chart views. If interested in seeing current charts for these ETFs, you need look no further than by reading my blog, Dave’s Daily. I post many of ETFs on a daily basis using daily and/or weekly charts and if looking for monthly charts, most of these are also featured within my new ebook as mentioned above.
When viewing my charts, my simple recommendation for longer-term investors is that they stay “above” or on the “right-side” of the 12-month simple moving average (MA). When prices are above the MA, stay long, and when below, remain in cash or short. Investors more interested in a fundamental approach may not care so much about technical issues, instead preferring to buy when prices are perceived as low and sell when high, among other reasons.
iShares NASDAQ Biotechnology ETF (IBB)
IBB (iShares NASDAQ Biotechnology ETF) which follows the NASDAQ Biotechnology Index which contains companies classified as either biotechnology cor pharmaceuticals companies. The fund was launched in May 2001. The expense ratio is .48%. Assets under Management (AUM) equal $2.2 billion and average daily trading volume is 474K shares. As of late January 2013 the annual dividend yield is negligible and YTD return 6.25%. The one year return was 27.80%.
Data as of January 2013
IBB Top Ten Holdings & Weightings
- Regeneron Pharmaceuticals, Inc. (REGN): 9.33%
- Amgen Inc (AMGN): 8.16%
- Gilead Sciences Inc (GILD): 7.57%
- Alexion Pharmaceuticals, Inc. (ALXN): 7.46%
- Celgene Corporation (CELG): 5.70%
- Biogen Idec Inc (BIIB): 5.25%
- Perrigo Company (PRGO): 3.75%
- Vertex Pharmaceuticals (VRTX): 3.41%
- Mylan Inc (MYL): 3.08%
- Biomarin Pharmaceutical, Inc. (BMRN): 2.90%
SPDR Biotechnology Select ETF (XBI)
SPDR Biotechnology Select ETF follows the S&P Biotechnology Select Industry Index which represents the biotechnology sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Biotech Index is an equal weighted market cap index. The fund was launched in January 2006. The expense ratio is .35%. AUM equal $731 million and average daily trading volume is 188K shares. As of late January 2013 the annual dividend yield is negligible and YTD return 9.70%. The one year return was 29.36.
Data as of January 2013
XBI Top Ten Holdings & Weightings
- Dynavax Technologies Corporation (DVAX): 2.79%
- Dendreon Corp (DNDN): 2.75%
- United Therapeutics Corporation (UTHR): 2.74%
- Isis Pharmaceuticals (ISIS): 2.71%
- Cepheid (CPHD): 2.68%
- Incyte Corp Ltd (INCY): 2.68%
- Sarepta Therapeutics Inc (SRPT): 2.64%
- Spectrum Pharmaceuticals Inc (SPPI): 2.63%
- Ariad Pharmaceuticals (ARIA): 2.62%
- Myriad Genetics, Inc. (MYGN): 2.61%
First Trust Biotechnology ETF (FBT)
The First Trust Biotechnology ETF follows the NYSE Arca Biotechnology Index which is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. The fund was launched in June 2006. The expense ratio is .60%. AUM equal $245 million and average daily trading volume is 53K shares. As of late January 2013 the annual dividend yield is negligible and YTD return 8.75%. The one year return was 28.90%.
Data as of January 2013
FBT Top Ten Holdings & Weightings
- Sequenom, Inc. (SQNM): 6.82%
- Illumina, Inc. (ILMN): 5.64%
- Biomarin Pharmaceutical, Inc. (BMRN): 5.63%
- Gilead Sciences Inc (GILD): 5.52%
- Regeneron Pharmaceuticals, Inc. (REGN): 5.47%
- Myriad Genetics, Inc. (MYGN): 5.44%
- Qiagen NV (QGEN): 5.26%
- Celgene Corporation (CELG): 5.12%
- Life Technologies Corp (LIFE): 5.11%
- Dendreon Corp (DNDN): 5.04%
PowerShares Dynamic Biotech & Genome ETF (PBE)
PowerShares Dynamic Biotech & Genome ETF follows the Dynamic Biotechnology & Genome Intellidex Index which is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The fund was launched in June 2005. The expense ratio is .60%. AUM equal $134 million and average daily trading volume is 15K shares. As of late January 2013 the annual dividend yield is 1.4% and YTD return 8.90%. The one year return was 15.61%.
Data as of January 2013
PBE Top Ten Holdings & Weightings
- Gilead Sciences Inc (GILD): 6.40%
- Illumina, Inc. (ILMN): 6.29%
- Amgen Inc (AMGN): 5.21%
- Waters Corporation (WAT): 5.19%
- Life Technologies Corp (LIFE): 5.10%
- Sigma-Aldrich Corporation (SIAL): 5.03%
- Biogen Idec Inc (BIIB): 5.01%
- Alexion Pharmaceuticals, Inc. (ALXN): 4.41%
- Affymax, Inc. (AFFY): 3.71%
- Bruker Corporation (BRKR): 3.24%
Market Vectors Biotech ETF (BBH)
The Van Eck Biotech ETF follows the Market Vectors US Listed Biotech 25 Index which is a rules-based index intended to track the overall performance of 25 of the largest U.S. listed and publicly traded biotech companies. The fund was “relaunched” in December 2011. It is the result of Van Eck taking over control of what previously was the Merrill Lynch HOLDRs which was a trust of securities from 2000. As a trust the previous constituents could not be changed other than if one were assumed by another company or ceased to exist. As a consequence over time some constituents increased dramatically in size and weighting. Frankly BBH was Amgen and little else.
The new index keeps much of the previous weightings as Van Eck from a business view most likely did not want to disrupt previous holders who were content with the way things were. But now we move on and see the index has changed considerably. The expense ratio is .35%. AUM equal $162 million and average daily trading volume is 44K shares. As of late January 2013 the annual dividend yield is negligible and YTD return 7.90%. The one year return was 38.90% with the latter mostly due to an even heavier weighting in Amgen than currently.
Data as of January 2013
BBH Top Ten Holdings & Weightings
- Amgen Inc (AMGN): 16.61%
- Gilead Sciences Inc (GILD): 13.64%
- Biogen Idec Inc (BIIB): 8.68%
- Celgene Corporation (CELG): 8.28%
- Regeneron Pharmaceuticals, Inc. (REGN): 5.38%
- Life Technologies Corp (LIFE): 4.52%
- Illumina, Inc. (ILMN): 4.47%
- Alexion Pharmaceuticals, Inc. (ALXN): 4.44%
- Biomarin Pharmaceutical, Inc. (BMRN): 4.24%
- Onyx Pharmaceuticals, Inc. (ONXX): 3.46%
The biotech sector still remains the hope for the future of health care in our opinion. Exposure to them is important but their inherent volatility makes technical views also important.
It’s also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being formulated and perhaps issued.
In his newest book, The Best ETFs: U.S. Equities, noted market commentator and ETF expert David Fry pinpoints the best ETFs across 26 subcategories in the U.S. Equities space. He also provides a bird’s eye view of where the markets are headed, as well as insights into his proven ETF-picking methodology. The book is available from amazon.com in Kindle format.
Category: U.S. Equities