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Technology companies have dominated the recent decade. As humans, we are still figuring out the best ways to apply their innovation.
The biotech industry is poised to be one of the biggest winners of the next decade, given its exciting new technology in extending and improving human life.
Keep reading to find out the best Biotech ETFs, specific holdings in each fund, and why you should consider investing in them.
What is BioTech?
Biotechnology, or “BioTech,” is a broad category of biology that uses living systems and organisms to develop or make products.
Biotech companies can operate in vastly different sectors, from agriculture to gene therapy, but the aim of most biotech companies is to create breakthrough drugs.
Best BioTech ETFs for Investors
#1. ARK Genomic Revolution ETF (ARKG)
- Performance over 1-Year: 171%
- Expense Ratio: 0.75%
- Assets Under Management: $12.02 billion
The ARK Genomic Revolution ETF is one of five active ETFs offered by Cathie Wood’s infamous ARK Invest team.
The fund invests in companies that are expected to substantially benefit from extending and enhancing human life quality via advancements made in genomic technology.
Investing in ARKG will get you exposure to innovative companies developing gene therapy bioinformatics (data), bio-inspired computing, molecular medicine, and pharmaceutical innovations.
ARK believes that the “genomic age” could create trillions of dollars in equity market capitalization by 2024 and that the convergence of next-generation DNA sequencing (NGS), AI, and gene-editing could cure disease entirely.
ARKG Top Holdings:
- Teladoc Health Inc (8.2%)
- Pacific Biosciences of California (5.2%)
- Exact Sciences (4.6%)
- Regeneron Pharmaceuticals (4.3%)
- Twist Biosciences (4.3%)
Learn More: ARK ETFs
#2. iShares Nasdaq Biotechnology ETF (IBB)
- Performance over 1-Year: 29.9%
- Expense Ratio: 0.47%
- Assets Under Management: $10.99 billion
iShares Nasdaq Biotechnology ETF seeks to track the investment results of an index composed of biotechnology and pharmaceutical equities listed on the NASDAQ.
It is a market-cap-weighted index, meaning that larger companies account for a greater portion of the fund than smaller stocks.
While the biotech industry is extremely volatile, IBB consists of the largest and most established biotech companies on the market, which tend to be less volatile relative to smaller ones in the sector.
IBB invests in many of the industry-leading companies that ARKG is trying to disrupt. IBB consists of stable biotechs that have built the capital to fend off such attacks and drive innovation in their own respects.
IBB Top Holdings
- Amgen (7.5%)
- Gilead Sciences (6.3%)
- Illumina (5.3%)
- Moderna (5.0%)
- Vertex Pharmaceuticals (4.4%)
Related: How to Research Stocks
#3. SPDR S&P Biotech ETF (XBI)
- Performance over 1-Year: 55.1%
- Expense Ratio: 0.35
- Assets Under Management: $7.69 billion
SPDR S&P Biotech ETF seeks to provide investment results that correspond to the total return performance of the S&P Biotechnology Select Industry Index.
This modified equal-weighted index provides exposure to large, mid, and small-cap stocks in the biotech ecosystem.
XBI’s equal weight structure gives investors “unconcentrated exposure” to 172 biotech companies.
This includes the smaller, more risky drug manufacturers who can see their share price rise or fall dramatically depending on approvals (or rejections) from the FDA.
XBI Top Holdings
- Vir Biotechnology (1.8%)
- Novavax (1.6%)
- Sorrento Therapeutics (1.3%)
- Agios Pharmaceuticals (1.3%)
- Ligand Pharmaceuticals (1.2%)
#4. First Trust Amex Biotechnology Index (FBT)
- Performance over 1-Year: 11.2%
- Expense Ratio: 0.55
- Assets Under Management: $2.12 billion
First Trust Amex Biotechnology Index ETF offers exposure to 30 companies capable of rapid price increase in the event of major drug approvals.
Like XBI, this ETF is equally weighted to accommodate the hit-or-miss nature of smaller biotech companies.
Risk-seeking investors bullish on biotech long-term might find this ETF attractive but may find better risk-to-reward ratios backing individual companies seeking drug approvals.
For every winner in niche corners of Biotech, there are countless more losers.
FBT Top Holdings
- Nektar Therapeutics (4.9%)
- Illumina (4.3%)
- FibroGen (4.0%)
- Bio-Techne (3.8%)
- Intercept Pharmaceuticals (3.8%)
#5. VanEck Vectors Biotech ETF (BBH)
- Performance over 1-Year: 27.1%
- Expense Ratio: 0.35
- Assets Under Management: $529 million
VanEck Vectors Biotech ETF invests in 25 companies involved in developing, producing, marketing, and selling drugs based on genetic analysis and diagnostic equipment.
BBH consists of the most liquid companies in the industry based on market cap and trading volume, in addition to favoring the largest given the fund’s market-cap-weighted methodology.
This ETF is like the aforementioned iShares Nasdaq Biotechnology ETF (IBB) because it also invests in the space’s biggest names.
Investors can expect less volatility when choosing the VanEck Vectors Biotech ETF relative to other funds in this article.
BBH Top Holdings
- Amgen (11.9%)
- Illumina (6.3%)
- Gilead Sciences (6.1%)
- Alexion Pharmaceuticals (5.4%)
- Biogen (5.3%)
#6. Global X Genomics & Biotechnology (GNOM)
- Performance over 1-Year: 56.0%
- Expense Ratio: 0.50%
- Assets Under Management: $209 million
Global X Genomics & Biotechnology invests in companies that stand to benefit from further advancements in the field of genomic sciences, such as companies involved in gene editing, genomic sequencing, genetic medicine/therapy, computational genomics, and biotechnology.
GNOM is a high-growth ETF that provides access to emerging areas within the healthcare sector at the intersection of science and technology.
We classify GNOM as “ARKG-adjacent” because it has a similar approach to betting on innovation within the biotech space and holds many of the same companies.
GNOM Top Holdings
- Pacific Biosciences of California (6.1%)
- Natera (5.0%)
- Ultragenyx Pharmaceutical (4.5%)
- Illumina (4.5%)
- CRISPR Therapeutics (4.4%)
Alternatives to BioTech ETFs
Investing in biotechnology can be difficult because there are so many unknown variables to consider.
Fortunately, several alternative investment options achieve some level of exposure to the biotech space.
For example, Amazon has quietly entered the healthcare industry over the past two years. In 2019, the company launched Amazon Care, which serves as a medical service and benefit for employees.
The king of e-commerce has been buying and deploying capital to healthcare and biotech companies alike. Here are some of its notable investments and acquisitions:
- Grail (genomics)
- PillPack (an online pharmacy)
- Health Navigator (digital healthcare startup)
- Juno Therapeutics (cancer medicine)
Alexa herself is jumping into healthcare after becoming HIPAA-compliant, allowing users to transmit protected health information securely through Amazon’s virtual assistant.
We realize that Amazon is not a biotech company, but there was a time when it wasn’t a cloud company, grocery store, or Hollywood studio.
BioTech ETF Risks
As previously mentioned, the biotech industry is extremely volatile and unpredictable.
While there may be massive potential upside in some names, it is often difficult to separate the winners from the losers.
That is why we recommend investing in a biotech ETF if you are interested in the space.
A biotech ETF will provide you with the narrow exposure to secure gains in the industry while maintaining diversification.
How to Research Biotech ETFs
Researching ETFs and stocks is a daunting task. Start out by understanding what each ETF is offering. What is their investment strategy? Who manages the ETF? Review the previous performance and see if it is outcompeting the broader S&P 500 index.
Remember, as an investor, the point is to make money. Biotech is notoriously volatile and is not for the faint heart. That said, there are a few hidden gems.
And if you are looking for tailored stock recommendations, then consider subscribing to the Motley Fool. They pick homerun after homerun and are demolishing the S&P 500.
Learn More: Motley Fool Review
BioTech ETF FAQs
What is the best AI ETF?
Most technology companies stand to benefit from the increasing adoption of artificial intelligence (AI), so investors should consider technology ETFs like Invesco QQQ, Vanguard Information Technology (VGT), or Technology Select Sector SPDR Fund (XLK).
Investors looking for more of a pure-play AI investment may also consider Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) and Ark Industrial Innovation ETF (ARKQ).
What are the best ETFs to invest in for 2021?
We recommend investors choose diversified ETFs that “own the market,” like the Vanguard 500 Index Fund ETF (VOO).
ETFs like VOO own companies in all eleven sectors and provide investors with diversification to lock in long-term returns.
However, another ETF to look into is the Invesco QQQ – an ETF that tracks the 100 largest companies in the tech-heavy Nasdaq.
About 44% of the fund is allocated to FAAMG stocks, so there is less diversification here but potentially more upside.
Is QQQ the best ETF?
QQQ is the 5th largest ETF by assets under Management and considered one of the best ETFs on the market.
It tracks some of the world’s best technology companies and has delivered phenomenal returns over the past decade.
Learn More: What Is QQQ?
What are the best biotech mutual funds?
While we recommend ETFs instead of mutual funds because they’re lower cost and more robust, some may still be interested in the best biotech mutual funds:
- Fidelity Select Biotechnology Portfolio (FBIOX)
- T. Rowe Price Health Sciences Fund (PRHSX)
- Fidelity Advisor Biotechnology Fund – Class A (FBTAX)
- Janus Henderson Global Life Sciences A (JFNAX)
- Franklin Biotechnology Discovery Fund (FBDIX)
Bottom Line: BioTech ETFs
Biotechnology is such an exciting industry to explore, and the possibilities are truly endless. The astonishing breakthroughs of the last decade suggest we’re still very early to the game.
While we’ve expressed the risks, there are plenty of great Biotech ETFs to choose in 2021.
More Investing Resources:
- Best FinTech Stocks
- Best Cybersecurity Stocks
- Upcoming IPOs to Watch
- FAAMG Stocks
- Best Stock Analysis Websites
Sean Graytok owns shares of ARKG.