The battle against COVID-19 has fueled serious upside for an array of healthcare assets this year. And within health care, there is perhaps no subsector more exciting than biotechnology. That is the use of living systems and organisms in health applications. Biotechnology can be used in a host of treatments, including applications such as the insulin taken by diabetics as well as dynamic cancer therapies that stimulate the body’s own immune system to fight off the disease.
Vaccine competitors like Moderna and Pfizer may be in the spotlight now, but beyond novel coronavirus, investors are drawn to biotech because it is one of the most innovative components of the broader healthcare sector, and that innovation fuels growth.
According to Morningstar:
“We project 4.7% annual average sales growth through 2024 for the 18 moatiest pharma and biotech names we cover, as innovation more than counters generic/ biosimilar and branded competitive threats.”
As you can imagine, the universe of biotechnology stocks is as vast as the potential treatments in the field, so a diversified exchange-traded fund may be very appealing to investors who want exposure to this sector while avoiding some of the risk and volatility associated with investing in an individual company.
Let’s explore two different biotech ETFs. One has heavier allocations towards companies who are skyrocketing on vaccine progress. The other isn’t heavy on Coronavirus fighters, but it’s highly relevant in the current biotech environment and beyond.
iShares Nasdaq Biotechnology ETF (NASDAQ: IBB)
The IBB fund seeks to track the investment results of the NASDAQ Biotechnology Index composed of biotechnology and pharmaceutical equities listed on the NASDAQ Stock Market. The Fund invests at least 90% of its assets in securities of the underlying Index and in depositary receipts representing securities of the Index.
- $8.76 billion in net assets
- Among IBB’s top holdings are Biogen, Moderna, Regeneron Pharmaceuticals Inc. and Gilead Inc.
- Share price for IBB is up 14.55% for the year.
- 0.46% expense ratio
- 0.23% yield
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ALPS Medical Breakthrough ETF (NYSEARCA: SBIO)
This Fund seeks investment results that correspond generally to the performance of the Poliwogg Medical Breakthroughs Index. The index is comprised of small and mid cap stocks of biotech and pharmaceutical companies that have one or more drugs in either Phase II or Phase III U.S. FDA trials.
SBIO may not have heavy allocations in COVID fighters, but the pandemic is placing added emphasis on later stage clinical trials- good for SBIO. Another relevant trait of SBIO – its member firms must have enough cash to survive at least 24 months at current burn rates.
- $209.54 million in net assets
- SBIO top holdings include Kodiak Sciences, Principa Biopharma Inc., Karuna Therapeutics Inc. and Dicerna Pharmaceuticals Inc.
- Share price is up 11.57% for the year
- 0.50% expense ratio
- 0.40% Yield
Of course, compared to other biotech investments, a less risky ETF investment probably won’t provide exponential returns in the near term.
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