A Biotech ETF summary

Filed under: Biotech ETF

We all want to make lots of money, right? The stock market is a good place to do it quickly, isn’t it? The stock market is indeed a place where fortunes are made. It is also, sadly, a place where fortunes are lost and people are financially ruined. One of the best ideas for investors who are keen to get a slice of the stock market pie but who don’t have the time to fully research a whole bunch of individual companies is to take out a biotech ETF. An ETF is basically a fund, an Exchange Traded Fund to give it the full title, which scoops up some of the potentially best stocks in a certain sector and sells them to you as a package. The profit is then based upon the overall performance of the stocks in the fund. The sector which covers the biotech ETF options is considered to be one of the most exciting ones around.

Now we know what an ETF is we need to find out what biotech means. This is basically a word used to describe any sort of technology which uses biology in its processes. Obviously this covers a huge range of technologies and processes. For example, a biotech company could be using bacteria to treat metals, or they could be creating new medicines through the genetic modification of yeast. Biotech industries cover these technologies and a whole lot of other stuff that can be baffling and almost entirely meaningless to the casual investor, or even the experienced one for that matter.

Ok, so now we know what biotech is and what an ETF is, what makes the idea of a biotech ETF so interesting? Well, it is a cutting edge technology where potentially huge advances can happen at any moment. Many experts believe that the next big technological breakthrough is likely to come from this field.

That’s great. Biotech rocks, so why don’t I just buy stocks in a biotech company instead of a biotech ETF? Because we don’t know which company or companies are going to be the big winners and which ones are going to be left standing still, or worse, which ones are going to be put out of business. Let’s look at an example. You invest directly in company Y, who are involved in trying to produce a new cancer drug using genetically modified bacteria. Their rivals are almost certainly working on similar projects. So company X strike gold first and their stocks go through the roof. Meanwhile, back in the company Y ranch its tears and falling stocks all round, as they pay the price of their competitor beating them to the punch.

The idea with a biotech ETF is that you gain through industry advances, rather than relying on one company’s advance. In the example cited above your ETF would reflect both the rise of one company and the fall of another. While this doesn’t give you as a big a profit as you would have got had you invested in company X it certainly means you avoid the big hit you would have taken on company Y stock.

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