Biotech industries are constantly devising better treatments, vaccines, and therapies. It's tempting to put money into biotech projects, but how do you know which ones? Biotech is subject to the scrutiny of national and international associations, so investors stand to win big when projects get approved and lose a lot when they don’t.
You don’t have those same worries when you invest in Biotech ETFs because you get to diversify your risk and optimize your profitability without buying individual biotech stocks. However, you still need to know which biotech ETFs to buy, so we’ve compiled this guide to the best ones.
Where Can I Trade Biotech ETFs?
If you're new to trading, it could take you some time to determine the broker to use when buying a biotech ETF. We’ve done the hard work for you by devising a list of the best brokers based on the fees, regulatory status, and unique features.
What is a Biotech ETF?
Biotech ETFs can be bought or sold during stock market trading hours in the same way as stocks. The difference is that you're spreading your risk by effectively buying several stocks at once. If one of the stocks within the ETFs fails, it may be offset by two more that succeed. Aside from spreading risk, buying an ETF rather than multiple stocks may also save you some broker fees.
ETFs typically invest in companies related to a specific theme. It could be all the companies from the FTSE 100 or S&P 500 index, or it could be something more specific like (in this case) biotech companies. In this guide, we look at metrics like company holdings, volatility, weight, and return-on-investment (ROI) to determine the best biotech ETFs.
Invest in Biotech ETFs in 3 steps
Open a Trading Account
Look out for trading accounts with low or zero account minimums, no trading fees, and very accessible online operations. Then fill out the account application form fields, choose a username and password, and await any possible verification sequence.
Choose a Biotech ETF
Choosing the biotech ETF to invest in is the most crucial step. It is where you get to evaluate which biotech ETFs are performing well by reviewing the broker’s list of available ETFs and possibly clicking each one for more information.
Place Your Trade
Most online brokers let you simply click the “buy” button for the ETF you want, and enter the amount you wish to invest. To make it easier to identify each ETF, a unique ticker symbol (e.g., IBB for the iShares Nasdaq Biotechnology ETF) is provided.
Best Biotech ETF To Buy Now
- ARK Genomic Revolution ETF (ARKG)
- iShares Nasdaq Biotechnology ETF (IBB)
- Principal Healthcare Innovators Index ETF (BTEC)
- Global X Genomics & Biotechnology (GNOM)
- SPDR S&P Biotech ETF (XBI)
- First Trust Amex Biotechnology Index (FBT)
- VanEck Vectors Biotech ETF (BBH)
- Invesco Dynamic Biotechnology & Genome ETF
- iShares Evolved U.S. Innovative Healthcare ETF
- iShares Genomics Immunology and Healthcare ETF
ARK Genomic Revolution ETF (ARKG)
ARKG focuses on investing in science and technology advancements in genomics that improve humans’ lives. Invested funds are allocated to biotech companies concerned with stem cells, therapeutics, gene editing, and bioinformatics. The ETF holds at least 60 growth stocks across various biotech markets. At the time of writing, the annual dividend yield is 0.95% and the expense ratio is 0.75%.
iShares Nasdaq Biotechnology ETF (IBB)
IBB focuses on biotechnology and pharmaceuticals. It is essentially a weighted index of big and stable biotech companies. This fact explains why it is relatively stable, contrary to the volatile nature of biotech markets. IBB has an expense ratio of 0.47% and it is a significant competitor to ARKG.
Principal Healthcare Innovators Index ETF (BTEC)
BTEC follows the Nasdaq U.S. Healthcare Innovators Index. It focuses on innovations in medicine, health care, facilities, therapies, and equipment, and it invests in more than 300 stocks. BTEC has an expense ratio of 0.42% (lower than its competitors) and an annual dividend yield of 0.38%.
Global X Genomics & Biotechnology (GNOM)
GNOM also focuses on genetically related biotech projects, which means gene editing, genomic sequencing, genetic medicine, genetic therapy, and computational genomics. GNOM spreads risk across 40 stocks, with 10 of the top holdings accounting for 43.1% of invested assets under management. GNOM has an expense ratio of 0.50%, an annual dividend yield of 0.15%.
SPDR S&P Biotech ETF (XBI)
XBI focuses on maximizing investments in the S&P biotechnology industry. Its investments are spread across 172 biotech companies. These companies' stocks range between large, mid, and small-cap companies. XBI manages assets worth $7.69 billion, has an expense ratio of 0.35, and a one-year performance of 55.1%.
Expert Tip For Investing in Biotech ETFs“ Always research and review the past performance of the biotech ETF you’re thinking of buying. It may be best to buy an ETF containing big biotech companies with proven histories rather than one with riskier small companies. ”- Mircea Vasiu
Why Trade Biotech ETFs?
Investing in individual biotech stocks can be risky, but a biotech ETF spreads your risk across several stocks. Unlike a managed mutual fund, an ETF is typically cheaper (lower management fees) and can be bought and sold at will during the trading day.
Frequently Asked Questions
Since your chosen biotech ETF spreads your risk, you don’t need to worry too much about your investment being wiped out by a single company failure. If you believe that the biotech sector has a bright future, you can simply sit back and watch.
The expense ratio is an administrative expense for the biotech ETF provider to manage the investments within the fund. The lower the expense ratio, the better, because high expense ratios eat into your profits. Beware that biotech ETFs (unlike index-tracking ETFs) don’t have the lowest expense ratios.
Buying biotech stocks means investing in only one company. Buying a biotech ETF means investing in a broader range of companies within the biotech sector, which reduces your risk.
Past performance often forms the basis of an investment thesis, but past performance is not a reliable indicator of future returns, so don’t rely on it entirely.
You can buy and sell biotech ETFs any time during trading hours (e.g., 9:30 am to 4 pm Eastern time). This is different from mutual funds that you can only instruct a broker to buy or sell at the next daily valuation time.
Yes, you get dividends as long as the underlying stocks in the ETF pay dividends. Some ETFs reinvest the dividends paid by the constituent companies, and some pay the dividends out to the ETF holders. You benefit either way.