The biotech industry became the center of attention after the 2020 pandemic literally closed the global economy. In an unprecedented global effort, the race has started to find a cure for the COVID-19 virus.
Many of the companies part of the best ETFs to trade presented in this article were and still are involved in the fight against the virus. From biotechnology to pharmaceutical companies, the companies that these ETFs track are in the frontline against the various diseases and viruses that the world does not yet have a solution for.
What Is a Biotech ETF?
The biotech industry is involved in everything-related to researching and developing new areas in clinical drugs, experimental ones, and so on. The sector has huge growth potential if we judge by the fact that the market capitalization of pharmaceutical and biotech companies grew at a CAGR rate of 17% in the last decade.
The biotech ETFs are open-ended funds, some with the ability of lending securities too, and they represent pooled-investments and a cheaper alternative to diversify and gain exposure to the sector.
Invest in Biotech ETFs in 3 Steps
Open a trading account with a brokerage house
The brokers listed in this article help gaining exposure to the biotech industry via trading Exchange Traded Funds
Choose biotech ETFs from the list offered by the broker
Pick your favorite biotech ETF or more than one
Start trading your favorite biotech ETF after funding the trading account
Where Can I Trade Biotech ETFs?
Brokers act as intermediaries between different market participants. They connect traders that want to buy with traders that want to sell and for their efforts they charge a fee, usually in the form of a spread (i.e., the difference between the bid and the ask prices). We have short-listed three brokers that you can find on the table that follows this paragraph, using such criteria as low commissions, easy-to-fund trading accounts, and the markets offered for trading.
Best Biotech ETFs to Buy Now
The list below comprises the best biotech ETFs to buy in 2020 and the ten names here were selected based on performance, dividend yield, and price/book ratio, to name just a few of the criteria used:
GNOM is an open-ended fund that tracks the genomics industry. Genomics is a big chunk of the overall biotech sector and the companies part of this ETF are active in fields such as genomic sequencing, gene editing, or genetic diagnostic. The constituents are market-weight capitalized and it includes both small and medium-sized companies.
- Composed over 95% of American companies
- Over two-thirds of it belongs to the biotechnology sector, with the rest split between pharmaceutical and healthcare equipment
- Pacific Biosciences of California and CRISPR Therapeutics are its main holdings, with roughly 5% in each
- Price/Book ratio of 6.50, slightly below the segment’s benchmark of 6.60
- Dividend yield of 0.12%
This is an equally weighted index (when compared to GNOM which is market-cap) focusing on the U.S. biotech sector. It reduces single-names risk and thus it is viewed as a highly efficient fund. It also lends securities.
- 100% invested in U.S. companies
- Biotherapeutics and biotechnology make more than 80% of this open-ended fund’s composition
- Novavax, Clovix, Sorento – just a few of the largest names with roughly 1.5% weight in the index
- Highly liquid – 4.7 million shares traded on average on any given day
- Price/Book ratio of 6.13
- Dividend yield of 0.11%
This ETF provides twice the exposure to the companies in the portfolio and thus is a modified market-capitalization-weighted index. On the market for more than a decade, it is one of the most popular biotech ETFs among retail traders.
- An average daily volume of 123k shares
- Focused on Nasdaq biotechnology large market capitalization stocks and also on similar stocks in the pharmaceutical sector
- 19.89% year-to-day return
IBB is an ETF focused exclusively on Nasdaq. However, the companies in this fund are not all from the United States. This ETF is a market-weighted index and tracks companies of all sizes in the biotechnology and the pharmaceutical sectors – small, medium, large. Individual holdings are capped to a specific percentage and many consider it as not taking full advantage of the industry’s capabilities due to focusing exclusively on Nasdaq-listed companies.
- Over 90% of its constituents are from the United States
- Other representative countries: United Kingdom, Denmark, Germany
- Other sectors represented: generic pharmaceuticals, medical equipment
- 2.4 million shares in daily average traded volume
- Price/Book ratio of 5.96
- Dividend yield of 0.64%
- Biggest holdings: Amgen, Gilead Sciences, Moderna
This is an ETF that tracks twenty-five of the largest companies with business activities in the biotechnology sector. It is also a market-capitalization-weighted index, it is very popular among investors due to the large average daily traded volume (i.e., liquidity) and because most of its constituents are U.S.-based.
- Over 95% of the constituents are American companies listed on the U.S. exchanges
- Other representative countries: Germany, Hong Kong
- Biotechnology and pharmaceuticals are the two most representative sectors
- Amgen, Novavax, Gilead – representative names among BBH’s constituents
- Price/Book ratio of 6.69
- Dividend yield of 0.67%
This ETF focuses on companies involved in the biotechnology sector that have various drugs in clinical trials. The success of such drugs usually leads to a boost in the share price and, thus, a boost in the value of the ETF.
- Over 98% of the constituents are from the developed economies, the rest from emerging markets
- Biotherapeutics drugs make more than 61% of the ETF
- Amyris, Novavax, NantKwest – some of the largest holdings
- Over 96% of the constituents are from the United States
- Price/Book ratio of 5.05
- Dividend yield of 0%
CHNA tracks the developments in the Chinese biotechnology sector. It includes companies from various subsectors, for example, distributors of biopharma products, service providers in biopharma, and also drug manufacturers.
- 82% of the constituents are Hong-Kong-based
- Open-ended fund unable to lend securities
- The pharmaceutical sector makes about a third of this ETF
- BeiGene, WuXi – some of the representative names
- Over 23% of the constituents are large-cap companies
- Price/Book ratio 3.96
- Dividend yield 0.71%
Small-cap biotech companies are represented by this ETF. Moreover, all of them are listed on Nasdaq. This open-ended fund is a market-capitalization-weighted index and has exposure to about two-hundred names of small-cap biotech companies listed on Nasdaq.
- Over 93% of the companies are from the United States
- Other representative countries: China, the United Kingdom, Ireland
- Kodiak Sciences, Vir Biotechnology – some of the main holdings
- Price/Book ratio 5.79
- Dividend yield 0.01%
Another ETF that tracks the Chinese biotech sector, CHB is a relatively new ETF. It includes companies of any size and rebalances its components twice a year.
- Number of holdings – 32
- Representative companies – Wuxi Biologics, BGI Genomics
- Average daily volume $112k
PBE is an equally-weighted index and the ETF tracks companies both in the genetic engineering and the biotechnology sectors. It rebalances quarterly and differs from most of the other ETFs in the industry because of the unique components.
- Over $300 million AUM
- YTD return 11.85%
- Securities lending permitted
- Biotechnology and medical research companies make up more than a third of this ETF
- All companies are from the United States
- Representative names – Fulgent Genetics, Alexion, Catalent, Biogen
- Price/Book ratio 5.38
- Dividend yield 0.02%
Expert Tip on Investing in Biotech ETFs
Watch the news for breakthroughs in major clinical trials or experimental drugs as they affect the share price of companies part of biotech ETFs.
Why Trade ETFs?
They are a cheaper, more diversified way to get exposure to one of the most interesting industries of our time.
Frequently Asked Questions
IBB. It has a huge AUM, large daily turnover, thus liquid enough to buy and sell without volume restrictions.
Considering the fact that the world is in a pandemic and the available vaccines came from biotech research, the financial results of the biotech companies will reflect the strong demand eventually.
Traders that want to avoid the costly process of owning common shares. ETFs are a cheaper, more diversified way to trade and own biotech shares, while also benefiting from dividends.
ETFs are pooled investments in various companies, shares only offer exposure to a single entity.
Yes, as they offer diversification benefits.
The biotech industry grew by more than 17% CAGR in the last decade, if we only consider the market capitalization of the major players involved and the trend continues.