Should You Invest in the iShares Biotechnology ETF?

Designed to provide broad exposure to the Healthcare - Biotech segment of the equity market, the iShares Biotechnology ETF IBB is a passively managed exchange traded fund launched on 02/05/2001.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Biotech is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 4, placing it in top 25%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $7.92 billion, making it one of the largest ETFs attempting to match the performance of the Healthcare - Biotech segment of the equity market. IBB seeks to match the performance of the Nasdaq Biotechnology Index before fees and expenses.

The ICE Biotechnology Index contains securities of NASDAQ listed companies that are classified as either biotechnology or pharmaceuticals.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.45%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.27%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector--about 100% of the portfolio.

Looking at individual holdings, Vertex Pharmaceuticals Inc VRTX accounts for about 9.31% of total assets, followed by Amgen Inc AMGN and Regeneron Pharmaceuticals Inc REGN.

The top 10 holdings account for about 53.07% of total assets under management.

Performance and Risk

The ETF has gained about 8.95% and was up about 14.19% so far this year and in the past one year (as of 07/31/2024), respectively. IBB has traded between $112.41 and $148.26 during this last 52-week period.

The ETF has a beta of 0.74 and standard deviation of 22.11% for the trailing three-year period, making it a high risk choice in the space. With about 221 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Biotechnology ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, IBB is an excellent option for investors seeking exposure to the Health Care ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

First Trust NYSE Arca Biotechnology ETF FBT tracks NYSE Arca Biotechnology Index and the SPDR S&P Biotech ETF XBI tracks S&P Biotechnology Select Industry Index. First Trust NYSE Arca Biotechnology ETF has $1.16 billion in assets, SPDR S&P Biotech ETF has $7.77 billion. FBT has an expense ratio of 0.56% and XBI charges 0.35%.

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