Contributor, Benzinga
July 27, 2023

Invests in the best biotech ETFs and other asset classes with Interactive Brokers.

Exchange-traded funds (ETFs) make it easier for investors to diversify their portfolios and minimize market research. Instead of analyzing individual stocks, ETF investors monitor the fund’s holdings and performance. Professional investors manage these funds and give you more time to focus on other priorities. Investors who want to invest in biotech may want to consider these top biotech ETFs.

7 Best Biotech ETFs

Biotech ETFs give investors exposure to various companies that use biotechnology. However, ETF performances, expense ratios and other factors make some biotech ETFs better than others. These are some of the top biotech ETFs to consider.

1. iShares Biotechnology ETF (NASDAQ: IBB)

The iShares Biotechnology ETF gives investors exposure to U.S. companies in the biotechnology industry. The fund has an 8.22% return over the past year and pays a quarterly dividend. IBB consists of 266 holdings, with Vertex Pharmaceuticals (8.59%), Amgen (8.26%) and Gilead Sciences (8.13%) representing the top three holdings. The fund has a 0.44% expense ratio.

2. ARK Genomic Revolution ETF (BATS: ARKG)

Like most ARK Invest ETFs, ARKG is a high-risk, high-reward fund, even for biotech standards. The fund is down by more than 70% from its all-time high but also more than quadrupled from its pandemic low to its February 2021 all-time high. The fund has a 20.76% year-to-date return and a 0.75% expense ratio. The fund’s top three holdings are Exact Sciences (10.85%), Schrodinger (7.73%) and Pacific Biosciences of California (6.20%). At least 95% of the assets go to North American companies, and the remaining capital goes to Western European companies. 

3. VanEck Biotech ETF (NASDAQ: BBH)

The VanEck Biotech ETF aims to mirror the performance of the MVIS U.S. Listed Biotech 25 Index (MVBBHTR). The fund focuses on highly liquid companies that are industry leaders. The fund has delivered an annualized return of 8.90% over the past 10 years and has a 0.35% expense ratio. The fund’s top three holdings are Amgen (12.25%), Gilead Sciences (9.06%) and Vertex Pharmaceuticals (8.40%). 

4. Global X Genomics & Biotechnology ETF (NASDAQ: GNOM)

The Global X Genomics & Biotechnology ETF gives investors exposure to companies that specialize in genomic sequencing. The cost of this sequencing has dropped dramatically, falling from $100 million per genome in 2002 to less than $1,000 in 2020. Those lower costs make genomic sequencing ripe for further adoption. The fund’s lifetime returns are not the best, as it’s declined by an annualized rate of 11.56% over the past three years. This is a wait-and-see fund that can become promising if genomic sequencing takes off. GNOM has a 0.50% expense ratio, and its top three holdings are Pacific Biosciences of California (5.05%), Intellia Therapeutics (4.50%) and 10X Genomics Inc - Class A (4.42%).

5. Principal Healthcare Innovators ETF (NASDAQ: BTEC)

The Principal Healthcare Innovators ETF has generated an 11.49% return over the past year and has a 0.42% expense ratio. BTEC invests in 229 companies, and the top three holdings are Exact Sciences (3.76%), Alnylam Pharmaceuticals (2.96%) and Seagen (2.96%). The fund seeks to capitalize on healthcare solutions.

6. Virtus Life SciBiotech Products ETF (NYSEARCA: BBP)

The Virtus Life SciBiotech Products ETF aims to mirror the LifeSci Biotechnology Products Index. The fund has a 0.79% expense ratio and has generated an annualized return of 9.29% since its inception on Dec.16, 2014. The fund also had a 27.15% gain over the past year. The fund focuses on assets with high growth exposure and utilizes equal stock weightings through semi-annual index rebalances. The top three holdings are BridgeBio Pharma (3.64%), Halozyme Therapeutics (2.34%) and Acadia Pharmaceuticals (2.30%). 

7. Franklin Genomic Advancements ETF (BATS: HELX)

The Franklin Genomic Advancements ETF has a 0.50% expense ratio and has generated an annualized return of 5.96% since its inception on Feb. 25, 2020. The fund gives investors exposure to companies that profit from DNA sequencing, gene editing and personalized medicine. The fund has 59 holdings, and the top three stocks are Thermo Fisher Scientific (6.25%), Danaher (5.64%) and Repligen (5.57%).

What is a Biotech ETF?

A biotech ETF is a fund that gives investors exposure to companies in biotech. These funds streamline an investor’s research by having them look at funds rather than comparing individual stocks. You can save a lot of time with ETFs and could achieve a similar return to buying individual stocks in the same industry.

Why Invest in Biotech ETFs?

Biotech ETFs offer investors instant portfolio diversification in the biotech industry. These funds minimize risk, and you don’t have to spend as much time analyzing individual stocks. Fund managers stay on top of the industry and decide when to add, trim or remove stocks from the fund.

Where to Invest in Biotech ETFs

Biotech ETFs might strengthen your portfolio, but you need the right broker to minimize your fees and increase returns. These are some of the top brokers for biotech ETF investors.

Factors to Consider When Choosing Biotech ETFs

Biotech ETFs each give investors exposure to biotech companies, but a few factors can impact your total returns. These are the details to look for when choosing biotech ETFs. 

Expense Ratio and Fees

Each ETF has an expense ratio and other fees that reduce your total returns. Some ETFs do a better job of minimizing these expenses. You may want to be careful of ETFs with expense ratios above 0.60% and avoid them if their expense ratios exceed 1%. There are some exceptions where funds with high expense ratios can be worth it, but they are rare.

Fund Size and Liquidity

Funds with more assets can cover more ground and typically have lower expense ratios. Large funds with frequent trading activity are also easier to exit if you want to get out of the position. Low-liquidity funds present fewer opportunities for an exit, and you may have to settle with a selling price well below the market price. Low liquidity also means you have to pay extra to buy shares.

Sector Allocation

Biotech ETFs invest in biotech companies, but there are multiple sectors within biotech. Investors also have to consider if the ETF focuses on large caps, small caps or a blend. Investors should review the funds and see which industries they have prioritized.

Historical Performance and Risk

A fund’s historical performance offers no guarantees, but a fund with steady returns can be more reliable than a fund that has taken investors on a roller coaster. You may want to be more cautious if the fund has experienced sharp downturns that stand out from market downturns during the same time frame.

Diversify Your Portfolio with Biotech ETFs

Biotech ETFs give investors exposure to innovative biotech companies. Individual biotech companies are often high-risk, high-reward investments. However, an ETF can minimize the risks within this industry by spreading capital across many biotech stocks. Investors should analyze their portfolio goals and assess if biotech ETFs make sense for them before getting started.

Frequently Asked Questions 

Q

Are biotech ETFs a good investment?

A

Biotech ETFs can be a good investment. These ETFs give investors exposure to more than one biotech company, which diversifies risk.

Q

Which Vanguard ETF to invest in biotech?

A

Vanguard has a healthcare ETF. Its ticker is VHT.

Q

What is the largest biotechnology ETF?

A

The largest biotechnology ETF is the iShares Biotechnology ETF (IBB).

Best Biotech ETFs Methodology

The best biotech ETF methodology involved looking for ETFs with good liquidity and assets under management. This methodology also considers how each fund offers opportunities for investors to profit from biotech innovations.

About Marc Guberti

Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.