New Biotech ETF From ALPS

ALPS Advisors snuck in one last ETF launch before the end of the year, adding to the long list of ETFs launched in 2014. The ALPS Medical Breakthrough ETF SBIO began trading on New Year’s Eve and could attract big money on the calendar flip.

The ETF is designed to track biotech company’s that have products in their pipeline in either Phase II or Phase III of the FDA clinical trial process. In a Phase II trial, the drug is administered to a group of 100 to 300 people to see if it is effective and to evaluate its safety. In a Phase III trial, the drug is given to a larger group, between 500 to 3,000 people, to confirm its effectiveness, monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatment to be used safely.

This strategy allows some of the risk to be eliminated from investing in the smaller biotech stocks. Rather than having just an idea or a drug in its very early stages, companies in SBIO are made up of companies that are further along the approval process.

The ETF is composed of 75 small and medium-size companies with a market cap ranging between $200 million and $5 billion. The top five individual holdings are:

• NPS Pharmaceuticals with a 4.5 percent holding
• Receptos Inc making up 4.4 percent
• Seattle Genetics Inc at 4.4 percent
• Akorn Inc coming in at 4.1 percent
• Pacria Pharmaceuticals INC at 3.8 percent

SBIO opened at $25.00 on December 31 and traded 25,000 shares in the first two hours.

The charts of SBIO's top holdings show the potential gains with smaller biotech names when their drugs progress through the approval process. By using an ET, the company-specific risk is softened and investors could ride the wave of medical breakthroughs without a huge risk.