Introduction
Biotechnology is a field that studies the fundamental principles of life and living organisms, along with the technologies used to exploit life for everything from healthcare to manufacturing, and it is an industry experiencing tremendous growth.
It’s easy to understand why. Biotechnology became critically important during the COVID-19 pandemic, with many biotech companies responsible for the vaccines and treatments that would help mitigate its impact. Other types of biotech companies focus on finding solutions to major problems such as cancer or climate change.
We have reviewed several funds in this field to create a list of the top five biotechnology exchange-traded funds (ETFs) to invest in. We selected these funds based on their size, investment costs, historical returns, and their specific focus within the world of biotechnology.
iShares Biotechnology ETF
Three-year return (as of January 11, 2022): 16.62%, expense ratio: 0.45%, assets under management (as of January 11, 2022): $9.4 billion, inception date: February 5, 2001.
The iShares Biotechnology ETF (IBB) is a fund that focuses on investing in U.S. biotechnology companies. Most of its assets are in healthcare companies that focus on developing new drugs and treatments for diseases.
This fund is the largest on our list, with managed assets of over $9 billion, meaning investors will not have difficulty buying and selling shares in the fund. The fund’s expense ratio is 0.45%, which equals $4.50 for every $1,000 invested.
ARK Genomic Revolution ETF
Three-year return (as of January 11, 2022): 33.40%, expense ratio: 0.75%, assets under management (as of January 11, 2022): $5.5 billion, inception date: October 31, 2014.
The ARK Genomic Revolution ETF (ARKG) is an actively managed fund that invests in both U.S. and global companies. This fund focuses on companies that “are focused on extending and improving the quality of human and other lives” through genomics. This means the fund is centered around healthcare, information technology, materials, and energy.
The fund has performed well over the past three years, boasting assets of $5.5 billion, making it one of the largest funds on this list. However, its active management leads to higher management fees compared to some alternatives. The fund’s expense ratio is 0.75%, which equals $7.50 for every $1,000 invested.
SPDR S&P Biotech ETF
Three-year return (as of January 11, 2022): 15.9%, expense ratio: 0.35%, assets under management (as of January 11, 2022): $6.1 billion, inception date: January 31, 2006.
The SPDR S&P Biotech ETF (XBI) is an index fund that aims to track the S&P Biotechnology Select Industry Index. This index is largely comprised of biotechnology companies operating in the healthcare and drug development space.
The fund’s passive management means it is the cheapest among the funds on our list. The fund’s expense ratio is 0.35%, which equals $3.50 for every $1,000 invested. The fund has over $6 billion in assets, so investors do not need to worry about liquidity.
iShares Genomics Immunology and Healthcare ETF
Three-year return (as of January 11, 2022): not available, expense ratio: 0.47%, assets under management (as of January 11, 2022): $298 million, inception date: June 11, 2019.
The iShares Genomics Immunology and Healthcare ETF (IDNA) invests in companies worldwide with a focus on companies “along the full value chain of genomics, immunotherapies, and the healthcare industry.” This may be appealing to investors looking for a fund with a global portfolio and a broader focus than just healthcare.
The fund contains
The fund has less than $300 million in assets, which means investors may have to consider liquidity issues when buying or selling shares. The expense ratio for the fund is 0.47%, equating to $4.70 for every $1,000 invested.
ALPS Medical Breakthroughs ETF
Three-Year Return (as of January 11, 2022): 14.42%, Expense Ratio: 0.50%, Assets Under Management (as of January 11, 2022): $165.6 million, Inception Date: December 30, 2014.
The ALPS Medical Breakthroughs ETF (SBIO) invests in mid and small-cap companies in the biotechnology sector. Each company in the index followed by the fund has at least one drug in Phase II or Phase III clinical trials.
This means that investors have the opportunity to invest in companies undergoing clinical trials, which spreads the risks and potential rewards. The expense ratio for the fund is 0.50%, equating to $5 for every $1,000 invested. However, the total assets under management for the fund are only $165 million, the smallest amount of any fund on this list. Investors may be concerned about liquidity when buying and selling shares.
Advantages and Disadvantages of Investing in Biotech
Advantages
- Significant profit potential with successful drug or product clinical trials.
- Growth in the biotechnology market.
- Many biotech companies are strong investments in terms of environmental, social, and governance (ESG) criteria.
Disadvantages
- Risk of loss with clinical trial failures.
- Trials can take a long time.
- Limited time to benefit from new developments.
Historical Performance Developments
Over the past five years, biotechnology has seen significant growth. The Nasdaq Biotechnology Index rose from about 2,900 points in January 2017 to a high of nearly 5,460 points in September 2021.
Source: https://www.thebalancemoney.com/best-biotech-etfs-for-2022-5217444
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