The Biotech ETF Poised for Growth in 2023

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Biotech investing is all about the odds.

You see, most startups in the sector fail. But when they win, they win BIG!

That’s why it’s difficult for most investors to try and pick individual winners and losers.

But spread your risk amongst dozens of stocks, and diversification takes over.

Today, we look at the top biotech ETF sought out by financial pros at a rate that’s more than 100x the next closest search.

However, as you’ll find out by the end of the article, there’s a much better option for those interested in biotech investing.

Key Facts About XBI

• Net assets: $6.75 billion
• 12-month trailing yield: 0.04%
• Inception: January 31, 2006
• Expense ratio: 0.35%
• Number of holdings: 149

If you’re looking for a biotech ETF, SPDR S&P Biotech ETF XBI is the most popular by a mile.

With almost $7 billion in net assets, the ETF tracks the performance of the S&P Biotechnology Select Industry Index. 

The top holdings won’t mean much to you unless you’re well-versed in biotechnology companies.

What you should know is that other than the top holding, no one stock makes up more than 2% of the total portfolio, giving it a fairly even weighing across the board.

Source: State Street

The ETF is a passively managed fund, allowing the issuer to keep expenses at a reasonable 0.35%.

This isn’t a fund for dividends as they are rare and small.

Performance

The 1990s were primetime for biotech and pharmaceutical companies.

Since then, the industry has gone through boom and bust cycles.

However, Covid may have changed the game as many countries are now focused on delivering better healthcare at lower costs while fighting the diseases of tomorrow.

Source: State Street

Competition

Although biotech is a specific niche, there are several funds to choose from, both active and passive:”

• ARK Genomic Revolution ETF (ARKG): For fans of Cathie Woods, ARKG is her actively managed biotech ETF that invests in companies that could profit from technological and scientific advancements in gene editing, genetic therapy, molecular diagnostics, and stem cell advances.
• iShares Nasdaq Biotechnology ETF (IBB): Similar to the XBI, the IBB invests in a large swath of biotech companies. However, it holds nearly 2x as many stocks as the XBI.
• VanEck Vectors Biotech ETF (BBH): VanEck’s biotech ETF only holds 25 stocks, typically more well-known names like Amgen, Gilead, and Biogen.
• VanEck Vectors Pharmaceutical ETF (PPH): A slightly different take, the VanEck Pharmaceuticals ETF invests in companies in the pharma industry. 

Of the ETFs listed, the XBI and IBB may look similar. However, the IBB has delivered much better returns with a more diversified portfolio.

Our Opinion 5/10

In our opinion, the IBB is a much better way to play biotechnology and we’d rate it a 10/10.

It offers better overall performance, diversification, and a slightly better dividend yield that offsets the expense ratio differences.

The XBI may be more popular. But for our money, IBB is the way to go.