9 Best Biotech ETFs to Play High-Octane Trends
Biotechnology is a dynamic but often volatile industry. These biotech ETFs provide a lower-risk way to invest in the space.
Biotechnology might not be at the top of every investor's mind, but biotech exchange-traded funds (ETFs) should always at least be on your radar.
Healthcare is one of the market's most dynamic and resilient sectors. After all, one of the surest things in life is getting sick and needing care as we age – and that means guaranteed "customers" in any environment.
The opportunities are particularly large for biotechnology stocks addressing big medical challenges such as cancer or Alzheimer's or rare conditions without any existing treatments available. But some investors might be better off interacting with the industry through biotech ETFs instead.
That's because individual biotech stocks can be incredibly volatile. Small, trial-stage firms sometimes burn cash for years on the hopes of their research paying off. When it does, these biotechnology start-ups soar – but when it doesn't, they tend to drop like rocks.
Biotech ETFs provide a lower-risk way to play this broader trend. Interested investors don't have to personally research how individual stocks are performing or look up rather arcane studies on unpronounceable diseases. That's because these diverse funds hold dozens or hundreds of stocks, preventing any one company from having an disastrously outsized impact on your portfolio.
Here are nine of the best biotech ETFs to play this high-octane healthcare trend. Each provides a unique way to approach this corner of the market.
Data is as of July 7. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
iShares Biotechnology ETF
- Assets under management: $10.6 billion
- Dividend yield: 0.17%
- Expenses: 0.46%, or $46 annually for every $10,000 invested
The iShares Biotechnology ETF (IBB, $161.43) is the leader among biotech ETFs, with about $10 billion in assets under management. That makes it a very popular and liquid way to trade biotech stocks in an exchange-traded fund. Top holdings among its 270-some positions at present include Amgen (AMGN), Gilead Sciences (GILD) and Moderna (MRNA).
But it's worth noting that these are hardly start-ups anymore, with the "smallest" of the three (Gilead) boasting a market capitalization of $85 billion – larger than companies like General Motors (GM) or Ford (F). Furthermore, these mature companies represent the lion's share of the fund with that aforementioned trio worth about 20% of the total assets alone.
That may not be a drawback if you want to generally play the next generation of drugmakers, but also want to make sure you're not throwing money behind unproven start-ups that may not have much revenue or consistent profitability to speak of.
But it's worth noting nevertheless that many of the top holdings have already seen considerable growth. In other words, they may not provide the "hockey stick" in their charts that some investors associate with breakout biotech investing.
ARK Genomic Revolution ETF
- Assets under management: $9.4 billion
- Dividend yield: 0.00%
- Expenses: 0.75%
Close behind IBB in terms of largest biotech ETFs is the ARK Genomic Revolution ETF (ARKG, $88.70). This is a more focused offering in some ways because it has only about 60 stocks, but it's a more disparate fund in other ways as it includes some outliers you may not immediately think of as biotech stocks.
For instance, the top position at present is Teladoc Health (TDOC), a $24 billion healthcare services stock that specializes in remote doctor visits and "virtual care." Another top holding is Exact Sciences (EXAS), a $20 billion diagnostics and testing company.
While other more traditional biotechs like Regeneron Pharmaceuticals (REGN) are also high up on the list, admittedly a handful of components may make some biotech investors scratch their heads a bit if they expect to see only drugmakers here.
Some investors may appreciate this extra layer of diversification, but as with other funds on this list, it is important to clearly understand the way this biotech fund is structured before you invest your hard-earned cash.
SPDR S&P Biotech ETF
- Assets under management: $7.4 billion
- Dividend yield: 0.23%
- Expenses: 0.35%
The third major biotech ETF that's out there is the SPDR S&P Biotech ETF (XBI, $131.35) – an "equal weight" offering from SPDR with more than $7 billion in assets at present.
It's more diversified than some of the other picks on this list of biotech funds in that it has about 200 total holdings, but regularly rebalances to try and spread the cash equally around each position.
That means while you do have a smattering of mature biotechs, you also get plenty of exposure to lesser-known picks with high potential – like Intellia Therapeutics (NTLA), which has surged more than 266% year-to-date.
That massive run has naturally caused the value of NTLA stock to represent a larger share of the portfolio than other stocks that haven't fared as well. But even so, Intellia accounts for just over 1% of the total assets at present – proving that XBI is serious about diversification.
VanEck Vectors Biotech ETF
- Assets under management: $563.9 million
- Dividend yield: 0.3%
- Expenses: 0.35%
VanEck Vectors Biotech ETF (BBH, $198.05) is slightly smaller than the biotech ETFs we've seen so far, but still quite established with more than $560 million in customer funds.
However, when it comes to the makeup of the portfolio itself, BBH is significantly smaller with just 25 total stocks right now – and about 20% in the top three positions, which, similar to IBB, are AMGN, GILD and MRNA.
This "all your eggs in one basket" approach is certainly higher risk, but it has also resulted in significantly higher rewards this year. Consider that the prior XBI fund is actually down slightly on the year, while BBH is up an impressive 16.7%.
As with so many other investments, it's worth remembering that past performance in this biotech ETF is not a guarantee of future returns. With a short list of stocks, there is more risk for things to go south if just one or two components roll over. But, as you can see from recent gains, when things go well, the investors in BBH can really cash in.
iShares Genomics Immunology and Healthcare ETF
- Assets under management: $322.6 million
- Dividend yield: 0.2%
- Expenses: 0.47%
The iShares Genomics Immunology and Healthcare ETF (IDNA, $49.66) follows a similar approach to BBH insofar as it's not as interested in casting a wide net on a few hundred biotech stocks. The list right now is about 50 total components in this roughly $320 million biotech fund.
However, BBH is largely focused on mature biotech companies that offer up many different types of treatments. What this iShares fund offers is right in the name – a more direct play on the unique category of drugs and technologies that serve genomics and immunotherapy applications.
Specifically, the fund's top holdings right now include gene therapy company CRISPR Therapeutics (CRSP) and testing company Invitae (NVTA) that offers screening for cancer, heart disease and other conditions based on your personal heredity.
If you are interested in this specific corner of biotech, IDNA offers a way to do so without picking individual stocks.
Invesco Dynamic Biotechnology & Genome ETF
- Assets under management: $293.1 million
- Dividend yield: 0.00%
- Expenses: 0.58%
Taking a different approach, the Invesco Dynamic Biotechnology & Genome ETF (PBE, $76.69) invests in a short list of roughly 30 companies, but picks and chooses biotech stocks based on qualitative criteria. Specifically, documents from Invesco state PBE is built "by thoroughly evaluating companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value."
Generally speaking, actively managed ETFs like this get a bad rap. Countless articles have been written about how low-cost index funds regularly outperform managers who claim their costly "special sauce" makes for a better approach to investing. However, PBE has a pretty good track record.
In the last 12 months, for instance, this Invesco fund has surged 28% – much better than two of the biggest biotech ETFs IBB and XBI, both of which are "only" up about 16% in the same period.
ALPS Medical Breakthroughs ETF
- Assets under management: $232.7 million
- Dividend yield: 0.00%
- Expenses: 0.50%
ALPS Medical Breakthroughs ETF (SBIO, $48.17) is a smaller exchange-traded fund when it comes to both the brand name of the asset manager and the total funds under management. But SBIO is actually one of the more interesting options on this list of biotech ETFs because of its wide reach, as well as its focus on lesser-known names in the industry.
Currently, the fund has about 130 total positions, topping many of the other biotech ETFs featured here when it comes to breadth. Furthermore, its top three holdings at the moment – Vir Biotechnology (VIR), Legend Biotech (LEGN) and TG Therapeutics (TGTX) – collectively tally only about $16 billion or so in market value.
Considering the $50 billion or even $100 billion healthcare giants that populate many of the other biotech funds on this list, SBIO's focus on small companies – even while holding a deep bench of prospects – could appeal to investors looking at truly dynamic biotech companies.
Principal Healthcare Innovators Index ETF
- Assets under management: $170.3 million
- Dividend yield: 0.00%
- Expenses: 0.42%
With just under $200 million in assets, the Principal Healthcare Innovators Index ETF (BTEC, $58.67) is significantly smaller than other biotech ETFs on this list. However, it is the leader in total holdings with more than 300 total positions at present and thus could be worth a look because of this.
Keep in mind, however, that BTEC's broad approach means that it is actually slightly more inclusive than simply investing in the biotech sector. So you get top holdings like Seagen (SGEN), a smaller biotech focused on cancer cures, along with companies like Insulet (PODD), which makes wearable and implantable medical devices for diabetics to help manage their insulin.
Of course, if the reason you find biotechnology so appealing as an investment area is because you are fundamentally interested in next-gen medical companies, then it might not matter too much whether you're chasing just biotech drugmakers or also including medical device and technology services companies.
Still, that slightly more inclusive approach is worth understanding before you decide where to put your cash.
Loncar Cancer Immunotherapy ETF
- Assets under management: $46.5 million
- Dividend yield: 0.90%
- Expenses: 0.79%
Disclaimers up front: Loncar Cancer Immunotherapy ETF (CNCR, $30.97) is the smallest fund on the list with only about $50 million in total assets under management. It is also the most expensive as measured by annual fees.
However, it is undeniably appealing to investors who are interested in biotech stocks for one simple reason – the potential for blockbuster cancer drugs to power their portfolio.If you happen to fall into this very specific category of traders then CNCR could be worth a look.
Though only comprised of about 30 stocks, which range from Big Pharma giants like AstraZeneca (AZN) to mature biotechs like Regeneron Pharmaceuticals. Also included in CNCR's holdings are small, unprofitable start-ups like Atara Biotherapeutics (ATRA) that are still wholly concerned with researching potential cures without an established product pipeline yet.
There's clearly a lot of risk in this biotech ETF because of the structural components behind its makeup, as well as its unique and focused strategy just on cancer-related therapies. But if you think this is the area where there's the most potential, CNCR could be worth a look.