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Market Overview

Biotech ETFs Plummeting (XBI, IBB, BBH)

Biotech ETFs Plummeting XBI, IBB, BBH

A sector that does not appear to be linked to the government shutdown and the recent selling is taking a big hit the last few days. The biotech stocks are coming under heavy selling pressure as investors lock in big profits from earlier this year.

The NASDAQ Biotech Index is now down six percent in the last week and is testing support at the 50-day moving average. The index has only breached the indicator one other time this year, in mid-June. Year-to-date the index is up 47 percent.

It is time to take a closer look at the biotech ETFs to determine which is the best option when it is time to get back into the high-growth sector.


The ETF has fallen eight percent in the last week and is down five percent today, as it breaks below its 50-day moving average. The ETF is the most diverse of the biotech options with an allocation of 59 stocks and the largest holding only making up 2.8 percent.

The selling in XBI shows that the overall sector is succumbing to investors fleeing the sector. Year-to-date the ETF is up 38 percent and it charges a 0.35 percent expense ratio. Support on XBI will be in the $115-$117 area, the ETF is currently trading at $122.

iShares NASDAQ Biotechnology Index ETF (NYSE: IBB)

Holding up a little better than XBI, this ETF is down six percent in the last week and is currently trading at its 50-day moving average. In 2013, IBB is up 46 percent and it charges an expense ratio of 0.48 percent. There is a total of 121 stocks in the portfolio, however it is not as diversified as XBI due to a heavy weighting in its top holdings.

The top ten holdings account for 58 percent of the allocation with Biogen Idec (NASDAQ: BIIB)and Celgene (NASDAQ: CELG) accounting for 17 percent. Whereas, XBI’s top two holdings come in at five percent. If IBB cannot hold the $200 level, the next support area to watch is $187.

Market Vectors Biotech ETF (NYSE: BBH)

The best performer of the group in 2013 is BBH with a gain of 47 percent. With only 25 stocks in the portfolio and the top two holdings making up 24 percent, the ETF carries a higher level of risk. Gilead Sciences (NASDAQ: GILD) and Amgen (NASDAQ: AMGN) are the top holdings and the main driver of the price movement for BBH.

The reliance on the top stocks nullifies a major benefit of investing in an ETF – diversification. BBH is also breaching its 50-day moving average and the next support level is at $75. The expense ratio is 0.35 percent.

All three biotech ETFs vary dramatically in how they are composed and the returns over the long-term also differ greatly. This is a lesson on why it is so important to analyze an ETF before purchase rather than just looking at the name. Of the three ETFs mentioned, the diversity of XBI gives investors the best all around exposure to the sector at a reasonable price.


Related Articles (BBH + AMGN)

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