The biotech sector is notoriously volatile, influenced by clinical trial results and regulatory approvals. Thus, investing in biotech Exchange-Traded Funds (ETFs) provides investors with a strategic opportunity to gain exposure to cutting-edge healthcare innovations without the risks associated with individual stock picking.
Below I have highlighted three biotech ETFs: iShares Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI), and First Trust NYSE Arca Biotechnology Index Fund (FBT).
According to a Precedence Research report, the global biotechnology market is anticipated to reach $4.61 trillion by 2034, exhibiting a CAGR of 11.5%. Demographic trends like the aging population and increased healthcare spending are some drivers for the global biotech market to grow significantly in the coming years.
The biotech sector has been a hotspot for groundbreaking advancements, particularly in personalized medicine, CRISPR-based gene editing, and cancer immunotherapy. The FDA has approved 38 cellular and gene therapy products and also 42 novel drugs that target conditions from lung cancer to Alzheimer’s disease and various other chronic ailments.
As pharmaceutical companies and research labs accelerate these innovations, ETFs allow investors to benefit from the collective growth of this industry rather than relying on the success of a single company. ETFs also make an attractive option for those looking to participate in this high-growth sector while managing risk.
Given these encouraging trends, let’s look at the fundamentals of the top three Health & Biotech ETFs, beginning with number 3.
ETF #3: iShares Biotechnology ETF (IBB)
IBB seeks to invest in companies’ stock operating across biotechnology sectors. The fund tracks the performance of the NYSE Biotechnology Index. BlackRock Fund Advisors manage this fund.
As of November 26, 2024, the fund had assets under management (AUM) of $6.99 billion and an NAV of $140.28. IBB has an expense ratio of 0.45%, lower than the category average of 0.52%.
The fund’s top holdings include Gilead Sciences, Inc. (GILD) with a 9.66% weighting, Vertex Pharmaceuticals Incorporated (VRTX) at 7.85%, and Amgen Inc. (AMGN), and Regeneron Pharmaceuticals, Inc. (REGN) at 7.43% and 5.34%, respectively. It currently has a total of 212 holdings.
The fund pays an annual dividend of $0.45, translating to a 0.32% yield at the prevailing price level. The fund’s four-year average yield is 0.26%. Its dividend payouts have grown at a 24.4% CAGR over the past five years.
Over the past five days, the fund’s net outflow came in at $11.50 million. It has gained 17.5% over the past year to close its last trading session at $140.23.
IBB’s POWR Ratings reflect its promising prospects. The ETF has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Buy & Hold. Of the 42 ETFs in the Health & Biotech ETFs group, IBB is ranked #13. To access all of IBB’s POWR Ratings, click here.
ETF #2: SPDR S&P Biotech ETF (XBI)
XBI invests in stocks of companies operating across health care, pharmaceuticals, biotechnology, and life sciences sectors and tracks the S&P Biotechnology Select Industry Index. SSGA Funds Management, Inc. manages this fund.
With $7.55 billion in AUM, its top holdings are Natera, Inc. (NTRA) with a 3.33% weighting in the fund, Incyte Corporation (INCY) at 2.96% weight, followed by GILD, and United Therapeutics Corporation (UTHR) with 2.80% and 2.78% weightings, respectively. The ETF has a total of 140 holdings.
The ETF's expense ratio is 0.35%, compared to the category average of 0.52%. XBI fund outflow was $127.24 billion over the month.
XBI pays an annual dividend of $0.14, which translates to a 0.15% yield at the current price level. The fund’s dividend payouts have grown at a 56.9% CAGR over the past five years. Its four-year average yield is 0.07%.
Over the past year, XBI has gained 34.2% to close the last trading session at $98.85. The fund’s NAV was $98.79 as of November 26, 2024.
XBI’s promising outlook is reflected in its POWR Ratings. The fund has an overall rating of B, which translates to a Buy in our proprietary rating system.
The fund has an A grade for Buy & Hold. XBI is ranked #12 in the same group. Click here to access all the XBI ratings.
ETF #1: First Trust NYSE Arca Biotechnology Index Fund (FBT)
First Trust Advisors LP manages FBT. The fund invests in growth and value stocks of companies that operate across the healthcare, pharmaceuticals, biotechnology, and life sciences sectors. It seeks to track the performance of the NYSE Arca Biotechnology Index.
As of November 26, FBT had $1.18 billion in assets under management and an NAV of $172.89. Its expense ratio of 0.56% compares to the category average of 0.52%.
The fund’s top holdings include Exelixis, Inc. (EXEL) with a 4.62% weight, NTRA with a 4.30% weight, and Corcept Therapeutics Incorporated. (CORT) with a 4.28% weight, and argenx SE ADR (ARGX) with a 3.79% weight. It has a total of 30 holdings.
FBT has gained 22.4% over the past year and 13.9% over the past six months to close the last trading session at $172.67. Its fund outflow came in at $24.88 million over the past three months.
FBT’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Trade and Buy & Hold and a B for Peer. It is ranked #2 out of 42 ETFs in the same Health & Biotech ETFs group. To see the POWR Ratings of FBT, click here.
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XBI shares were trading at $99.86 per share on Wednesday afternoon, up $1.01 (+1.02%). Year-to-date, XBI has gained 11.99%, versus a 27.17% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
