2 New Biotech ETFs Offer Unique Industry Focus

The biotechnology sector has been on fire this year as investors bank on big returns from the development of new drugs and medical sciences. The First Trust NYSE Arca Biotechnlgy Indx Fd FBT leads this group with a total return of nearly 50 percent in 2014.

While there are numerous choices for playing the biotechnology theme using ETFs, a new fund sponsor is offering a unique opportunity to hone in on two specific niches.

On Wednesday, LifeSci Index Partners, LLC launched the BioShares Biotechnology Clinical Trials Fund BBC and the BioShares Biotechnology Products Fund BBP. Both funds are available on the NASDAQ market exchange.

Related Link: Gilead Sciences Bucks Trend In Biotech Short Interest

These distinct strategies focus on two separate groups within the biotech field: advanced products stage companies with FDA approved drugs and earlier clinical trials stage companies.

Andrew McDonald, PhD, LifeSci Index Partners’ Chief Executive Officer and former medicinal chemist, noted in the press release that “Clinical Trials stocks can often have dramatic volatility especially around clinical trial data releases, but these binary events can also offer significant rewards to risk-tolerant investors. Products companies, on the other hand, have much of their clinical data risk behind them and offer investors a window on sales ramps of new drug launches.”

BBC Profile

BBC will focus on earlier stage companies that are attempting to gain FDA approval of a drug or procedure. Companies within this ETF will be required to have a minimum market capitalization of $250 million and average daily trading volume of at least $1 million to ensure sufficient liquidity.

BBP Profile

By contrast, BBP will seek out stocks that have already attained FDA approval for at least one drug and are attempting to raise awareness of their products in the marketplace. These product companies will be put through a similar liquidity and size screen as well.

Both ETFs will employ an equal-weight approach to their index construction. This will allow smaller companies to have a greater impact on the overall performance of the fund and further separate these indexes from traditional market-cap weighted strategies.