VanEck Vectors Biotech ETF BBH
How biotech ETFs work
Biotech exchange-traded funds let you invest in a basket of health carecompanies through a single investment. These ETFs can be bought and soldthroughout the day just like individual stock, but there’s a major differencebetween these products and stock shares: Buying shares of an ETF spreads yourrisk across a wide range of companies, so that the losses of theunderperformers are offset by the gains of the outperformers. When buyingindividual stocks, you’re pinning all your hopes on the success of onecompany.What’s more, these funds track indexes — meaning they invest in each of thestocks contained in a predefined area of the stock market — so you won’t pay ahigher fee (commonly referred to as an ETF’s “expense ratio”) for a manager topick and choose investments for you.So when might investors seek out biotech ETFs, as opposed to broader ETFs orfunds that track other sectors? Global health scares like the coronaviruspandemic in 2020 may bring to the fore biotech companies’ research, clinicaltrials, treatments and cures. That additional attention could influenceconsumer sentiment, and as both retail and institutional investors race to buyshares of companies that may benefit from a particular product development,the sector as a whole could see a lift in stock prices.This trend appears to be holding true during the coronavirus-driven marketvolatility, with biotechnology stocks up 15% for the year as of July 7,compared to the S&P 500’s year-to-date return of -2.65%.Advertisement| | —|—|— NerdWallet rating NerdWallet’s ratings are determined by our editorial team.The scoring formula for online brokers and robo-advisors takes into accountover 15 factors, including account fees and minimums, investment choices,customer support and mobile app capabilities.|NerdWallet rating NerdWallet’s ratings are determined by our editorial team.The scoring formula for online brokers and robo-advisors takes into accountover 15 factors, including account fees and minimums, investment choices,customer support and mobile app capabilities.|NerdWallet rating NerdWallet’s ratings are determined by our editorial team.The scoring formula for online brokers and robo-advisors takes into accountover 15 factors, including account fees and minimums, investment choices,customer support and mobile app capabilities. | | | | | | | |
Understanding biotech ETF holdings
The companies ETFs invest in are called holdings. These may include some ofthe world’s most established and largest companies (think Johnson & Johnson orAstraZeneca) as well as smaller, less-experienced firms. But regardless ofsize, each will be assigned a specific “weight” in the ETF that determines howmuch the fund invests in a particular holding.For example, shares of biopharmaceutical company Amgen Inc. make up (as ofthis writing) 8.46% of the iShares Nasdaq Biotechnology ETF — the largestholding in the fund, which tracks an index of biotech and pharmaceuticalcompanies listed on the Nasdaq. Looking at an ETF’s holdings and theircorresponding weights can help you determine if it’s the right fund for you.Want to invest in smaller companies with a higher potential return in exchangefor higher risk? There’s an ETF for that. Want to stick with thepharmaceutical giants with historically less volatility? There are plenty ofthose, too.However, it’s important to note that sector ETFs are still often riskier thanS&P 500 or total stock market ETFs — even the largest sector ETFs won’t offerthe full diversification benefits of a broad market fund.» Quick tip: If you know of a company or companies you’re interested ininvesting in, you could search for an ETF based on that particular holdingusing a stock exposure tool. For example, if you wanted to find all ETFs thatinvest in Moderna, just put in its stock ticker, MRNA, and the tool willdisplay all ETFs that feature Moderna in their top holdings. Some brokerages,like Vanguard, offer this tool for account holders.
How to choose a biotech ETF
When researching biotech ETFs, you can get a sense of their risk level bylooking at their top 10 holdings, focusing primarily on those that are mostheavily weighted. From there, take into consideration the marketcapitalization of these holdings. In general, companies with larger marketcaps often tend to be less volatile than those with smaller market caps.The Virtus LifeSci Biotech Clinical Trials ETF, for example, invests incompanies currently conducting clinical trials. Many of these companies aresmall- and mid-caps with high growth potential; currently, the fund has morethan 130 such holdings. However, high growth potential also typically meanshigh risk.Below are eight global equity biotech ETFs with expense ratios below 1%,ranked by the average market cap of the companies held within the fund.| | —|—|— VanEck Vectors Biotech ETF| | iShares Nasdaq Biotechnology ETF| | First Trust NYSE Arca Biotechnology Index Fund| | Invesco Dynamic Biotechnology & Genome ETF| | Virtus LifeSci Biotech Products ETF| | Global X Genomics & Biotechnology ETF| | | | Virtus LifeSci Biotech Clinical Trials ETF| |
Virtus LifeSci Biotech Clinical Trials ETF (BBC)
Source: ShutterstockExpense ratio: 0.79%The Virtus LifeSci Biotech Clinical Trials ETF (NYSEARCA:BBC) is an under-appreciated story among biotech ETFs, but that’s not preventing it fromdelivering jaw-dropping returns. On the back of a 28.31% gain in December, BBCclosed 2019 higher by more than 62% year-to-date.“The fund benefited from a busy month for biotech companies,” reportsBloomberg. “While Novartis’s $9.7 billion takeover of Medicines Co. boostedoverall sentiment, stakes in ChemoCentryx Inc. and Karyopharm TherapeuticsInc. helped BBC outperform. ChemoCentry’s shares soared on positive dataregarding a drug to treat an inflammation disease, while Karyopharm reportedbetter-than-expected sales.”This biotech ETF tracks the LifeSci Biotechnology Clinical Trials Index,“which tracks the performance of select clinical trials stage biotechnologycompanies,” according to Virtus.Bottom line: BBC isn’t for the faint of heart, but it is one of the bestbiotech ETFs for aggressive, risk-tolerant investors.
Invesco Dynamic Biotechnology & Genome ETF (PBE)
Source: ShutterstockExpense ratio: 0.57%For investors who want access to some of the biggest biotech names with aweighting methodology beyond market cap, the Invesco Dynamic Biotechnology &Genome ETF (NYSEARCA:PBE) is a practical idea.PBE, one of the older biotech ETFs on the market, follows the Dynamic Biotechand Genome Intellidex Index. That benchmark weights its 30 components by pricemomentum, earnings momentum, quality, management action, and value. PBE hasbeen effective in limiting volatility relative to legacy, equal-weight andsome cap-weighted biotech ETFs.PBE’s overlap with competing funds, such as IBB, is relatively light soinvestors should expected substantial differences between this biotech ETF andrival products over long holding periods.Overall, PBE’s surprising lineup (it’s home to pharmaceuticals stocks residingin the Dow Jones Industrial Average) make this is a biotech ETF forconservative investors.As of this writing, Todd Shriber did not own any of the aforementionedsecurities.Top Tech ETFs Right NowThere’s just no stopping technology. Every industry heavily depends on it.However, in the investment world, some tech companies perform well whileothers don’t. If you are an investor who wants to invest in the tech sectorwith minimal risk, then technology exchange-traded funds (ETFs) might be asafe bet.Unlike direct investments in stocks, an ETF allows you to invest in the totaltechnology market by bundling the assets of several different companies into 1product. You can invest in the ever-changing tech industries without doinghomework on individual stocks.Check out Benzinga’s list of ETFs to make an informed decision about your nexttech investment.
How to Choose Biotech ETFs
ETFs have become extremely popular among investors. In response, the markethas filled with options. There are approximately 2,000 ETFs on U.S. exchangesalone. One of the most difficult parts of working with ETFs is simply choosingthe right ones. * Trading activity: Consider the trading volume for your ETF and whether it fits your own trading style. * Asset level: In general, you should look for ETFs with at least $10 million in assets to avoid a wide spread and low liquidity. If you choose an ETF with fewer assets, you’ll need to be more mindful in your selection and management. * Differentiation: There are some highly specialized options in the biotech ETF sector. Whether you’re looking for a mid-cap biotech ETF or 2x leveraged inverse biotech ETFs, you can find just what you’re after. Look for those that are truly original and not merely a clone of another’s approach.
Invesco Dynamic Biotechnology & Genome ETF (PBE)
PBE follows the Dynamic Biotech & Genome Intellidex Index, which evaluatescompanies based on criteria such as price and earnings momentum, managementaction, value, and quality. More than 70% of the 29 holdings in PBE are mid-or small-cap stocks. This ETF sits within the top five performers for thebiotech sector.
VanEck Vectors Biotech ETF (BBH)
BBH’s portfolio contains 25 U.S.-listed companies in biotechnology,pharmaceuticals, and medical equipment. It seeks to replicate the performanceof the MVIS U.S. Listed Biotech 25 Index. Though all the companies are listedin the U.S., some may be foreign businesses. These companies are weighted bycapitalization. BBH offers highly liquid assets though it’s a veryconcentrated fund.
Principal Healthcare Innovators Index ETF (BTEC)
BTEC aims to provide results corresponding to the performance of the NASDAQHealthcare Innovators Index, which features U.S. health care companies withsmall and medium capitalization. These are primarily businesses that arewaiting on regulatory approval and not those with existing products on themarket. BTEC also targets companies with negative earnings over the prioryear.
Virtus LifeSci Biotech Clinical Trials ETF (BBC)
BBC attempts to provide results corresponding to the performance of theLifeSci Biotechnology Clinical Trials Index. This index follows theperformance of biotechnology companies in the clinical trials stage. Thiscreates a small basket of small-cap and micro-cap stocks. BBC is a volatileand high-risk choice, but it also offers the potential for big rewards.
How to Pick a Biotech ETF
If the prospect of biotech stocks entices you but their volatility scares you,you’re not alone. That’s why there are more than a few biotech ETFs out there.Savvy investors rely on ETFs to help mitigate the uncertainty that comes withinvesting in individual biotech stocks. A basket of biotech stocks canactually be a safer bet than investing in one or two promising companies.The question is, how do you pick a biotech ETF? The biotech sector is diverse– and in many cases, unproven. Getting exposure to biotech stocks can meanvery different things depending on which ETF you choose. Here’s a look at thefactors to consider when choosing a biotech ETF – and some suggested ETFs tolook at.
Option 1: Treatment-Focused Biotech ETF
The world of biotech stocks is diverse. From recombinant DNA technology tointravenous immunotherapy, the medical field gets more complex with eachpassing year. That said, narrowing down a specific area of focus is a greatway to zero in on a biotech ETF.Many biotech ETFs pull together securities that all focus on the same area ofinnovation. You might find a medical device ETF focused on at-home care andquality of life products. Or you might focus on gene editing with an ETF fullof CRISPR-focused companies. Focusing on treatment quickly narrows the playingfield to give you a basket of stocks of similar companies.Looking for a great example of a biotech ETF that’s treatment-focused? Checkout the Loncar Cancer Immunotherapy ETF, which is focused on immunotherapy asa form of oncology. All assets within this ETF focus on immunotherapy drugsand treatments.