Best biotech ETFs to buy in 2022
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Biotechnology is an important and innovative sector of the market. The potential for growth entices investors because if a biotech company’s plans hit fruition, investors stand to gain record returns. This page offers our experts’ selection of the best biotech ETFs on the market today.
What are the top biotech ETFs to buy?
Our analysts have selected five of the best biotech ETFs for this year as displayed in the table below. Continue scrolling further to learn more about each ETF in turn.
|#||ETF symbol||ETF name||Where to Trade|
|1||IBB||iShares Biotechnology ETF|
|2||XBI||SPDR S&P Biotech ETF|
|3||ARKG||ARK Genomic Revolution ETF|
|4||BBH||VanEck Biotech ETF|
|5||PBE||Invesco Dynamic Biotechnology & Genome ETF|
1. iShares Biotechnology ETF (NASDAQ: IBB)
IBB is a fund that seeks to align with the yield and performance of a modified market-cap-weighted index that comprises US biotechnology companies listed on US exchanges. The fund currently has 377 holdings in companies that focus on the research and development of therapeutic treatments.
Despite a downturn in growth of 6% in the previous year of the pandemic, IBB has grown 12% in the last 3 years. This can partially be attributed to investor interest in biotech companies to deliver solutions for the pandemic.
The fund also rates highly for its ESG initiatives. This means that in the event of ESG-related disruptions, IBB’s performance is likely to remain resilient. Investors interested in the fund should do their own due diligence into whether the fund is a good fit for their portfolio to best place their investment.
2. SPDR S&P Biotech ETF (NYSEARCA: XBI)
XBI corresponds with a biotechnology segment of a US total market composite index. The fund currently has 159 holdings in American stocks. XBI is a rarity among biotech ETFs as it offers access to a market that is resilient to periods of consolidation: a narrow niche of the healthcare sector.
This narrow focus enables the fund to make big jumps in the event of major drug approvals. However, it also means that the fund is targeted at more active investors with higher risk appetites. Focusing on a narrow niche within healthcare is risky and often too precise for long-term investors seeking a low-risk portfolio.
In the same vein, it must be noted that the fund’s assets are almost evenly distributed across its holdings. This entails that there is low specific-holding risk associated with the ETF. Therefore, XBI is most suited to investors who are bullish on a niche healthcare sector and can afford to be so in the long run.
3. ARK Genomic Revolution ETF (BATS: ARKG)
ARKG is an actively managed fund that aims for long-term capital growth by investing in US and global securities. It currently has 55 holdings in companies across multiple sectors that relate to the fund’s investment theme of genomics revolutions. These sectors are healthcare, energy, information technology, consumer discretionary, and materials.
Its niche theme is based on the hope that the companies it holds shall substantially grow from their technological and scientific developments in genomics. This poses substantial niche risk for investors and you must be bullish on ARKG’s theme to invest for the long run. Furthermore, with only 55 holdings, investors must also consider specific-holding risk when investing in ARKG.
However, with greater risk there is greater reward. If its niche holdings perform well, you are in with a chance to gain significant profit through your investment in ARKG. The fund operates on a 0.75% management fee structure, which is affordable and relatively standard for biotech ETFs.
4. VanEck Biotech ETF (NASDAQGM: BBH)
BBH seeks to replicate the MVIS US Listed Biotech 25 Index. The index tracks the performance of companies involved in the development and production, marketing and sales of drugs related to genetic analysis and diagnostic equipment.
The fund has 25 holdings, as per the Index. It focuses on the largest and most liquid companies in the biotech industry (i.e. Moderna is its second largest holding allocated at 10% of the fund’s assets). Furthermore, holding the biggest US and global names means that BBH allows for enhanced industry representation.
This makes the fund a solid bet for investors looking to invest for the long run. Established names in the biotech industry can often carry the industry, and if you are interested in biotech then BBH may prove a value-add for your portfolio.
5. Invesco Dynamic Biotechnology & Genome ETF (NYSEARCA: PBE)
PBE is a fund that is based on the Dynamic Biotech & Genome Intellidex Index. It currently has 30 holdings in US biotechnology and genome companies. These companies are focused on the research, development, production, and sales of products, services, and processes that focus on advances in biotech research and genetic engineering.
The fund has grown 10% since it started out in 2005. PBE benefits from even asset allocation across its holdings which allows for hedging against specific-holding risk despite the small number of holdings. This is beneficial to investors opting for a passive style of long term investment.
Due to the lack of diversity in its thematic holdings, the fund is still prone to the niche industry risk of biotech research and genetic engineering. This is an upcoming and innovative sector and carries its own risks. Therefore, it is best to do your own due diligence and stay on top of news to best place your investment in PBE.
Where to buy the best biotech ETFs
Choosing an online ETF platform is the first step to buy any of the above exchange-traded funds for the biotech industry. ETFs are like individual stocks, you can buy or sell them as is convenient. The table below features our preference of the best brokers that offer biotech ETFs.
What is a biotech ETF?
It’s an exchange traded fund that holds shares in companies that operate in the biotech industry. Companies in this sector focus on the development of novelty drugs and advancements in clinical research to treat medical conditions and diseases.
Biotechnology is an innovative and disruptive sector due to the speculative growth nature of the products and services on offer. As a result, biotech ETFs are often risky investments and intended for more active investors.
Are biotech ETFs a good investment?
With high risk comes high rewards. Biotech companies are disruptive, innovative, and have untapped potential for growth. This means that ETFs holding these company stocks carry more risk than ETFs focused on other relatively stable industries.
Biotech ETFs are intended for more active investors with higher risk appetites. You must be able to cope with risk in the long term and not expect instant returns on your investment if you want to invest in biotech ETFs.
With the ongoing pandemic, the biotech industry is more prevalent than ever before. Unlike other industries, biotech is able to carry the pandemic in its stride (for example, through companies that focus on new drug development). Tech ETFs may be another area of interest for investors with lower risk aversion who want to enter the biotech sector.
You should best place your investment by doing your own due diligence and staying on top of the news using the links below.
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