Many biotech companies are reasonably small startups. Which means if a successful product is developed (then revenues, then earnings), share prices can skyrocket.
However, many investors who come to the biotech space to cash in on strong returns get burned by seemingly promising startups that only end up wasting investor capital in dead-end technologies.
Biotech companies are difficult to evaluate or analyze due to the speculative nature of their technologies, and due to the breadth of knowledge, experience, and education required to understand these. Although this is true for all industries, it is particularly true for biotech.
Specifically, genomics is one niche within the biotech group that could offer unimaginable returns, but the technology is so new and so advanced, many investors shy away from companies that are making astounding advancements. One solution is to delegate individual stock picking to the professionals.
In this article we’ll compare two ETFs to consider for our readers who are looking to gain access to companies at the forefront of genomics innovation, but don’t have time to research the field and the companies within it.
ARK Genomic Revolution ETF (ARKG)
ARKG reaches across multiple sectors and geographies for companies that the advisor believes will benefit from innovations in the genomics-related industry. Such companies are those that may develop, produce or enable targeted therapeutics, bioinformatics, stem cells or molecular diagnostics. The reality is almost all of its holdings are in US healthcare-related companies, with biotech naturally leading the way. This is a niche fund which employs an actively-managed strategy. The advisory firm, led by Catherine Wood, has an impressive track record doing what most stock pickers fail to do: beating the market.
- Weighted Average Market Cap $51.89B
- Price / Earnings Ratio -76.34
- Price / Book Ratio 5.49
- YTD Daily Total Return -7.12%
- Yield 0.89%
- Expense Ratio 0.75
- Net Assets 9.44B
- Number of Holdings 57
- Top Holdings: Teladoc TDOC, Exact Sciences EXAS, Pacific Biosciences PACB
iShares Genomics Immunology and Healthcare ETF (IDNA)
IDNA holds a concentrated portfolio of global companies in the biopharmaceutical and healthcare equipment and services industries that could benefit from the long-term growth and innovation in genomics, immunology and bioengineering. In addition to these industry screens, companies must also meet certain size and liquidity measures for index eligibility. The underlying index then assigns a “Relationship Keyword Score” to each of the eligible companies using the FactSet Supply Chain Relationships database in search for keywords related to ‘Genomics and Immuno Biopharmaceutical’ products and technologies. The top 50 names with the highest scores are included in the index. Holdings are weighted by market-cap and are constrained such that no individual security exceeds 4% weight of the portfolio. The index rebalances semi-annually.
- Weighted Average Market Cap $21.18B
- Price / Earnings Ratio -40.20
- Price / Book Ratio 5.01
- YTD Daily Total Return -1.39%
- Yield 0.26%
- Expense Ratio 0.47%
- Net Assets 287.46M
- Number of Holdings 51
- Top Holdings: BeiGene Ltd BGNE, Fate Therapeutics FATE, Exelixis Inc. EXEL
Beyond the active/passive difference, IDNA’s holdings are dominated by major pharmaceutical firms like Moderna (MRNA), Regeneron (REGN) and Gilead Sciences (GILD), whereas ARKG’s portfolio is tilted toward significantly smaller firms.
There isn’t a lot of performance history to compare, but it’s worth nothing that IDNA beat ARKG in the first ten weeks of 2020, when global markets were rocked by the coronavirus outbreak and investors were eagerly hunting for potential profit in companies researching treatment and vaccines.
But that’s just a fleeting snapshot during a particularly turbulent time. Any actively-managed product is ultimately a bet on the portfolio managers who pick the stocks. ARK’s products are geared toward investors who have the fortitude and faith to ride out short-term blips in favor of the prospect long-term alpha.
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