Biotech ETF primer

Filed under: Biotech ETF

Biotechnology is an industry that is known for a high degree of volatility and any Biotech ETF, being a pool of Biotech investments, shares in this volatility. You can have sharp changes in prices in either direction and these prices are influenced by the results of a biotech company as well as positive or negative news about the progress of research. Biotech is a unique industry in that it is entirely research-based and any research failure can wipe out the value of a company overnight and affect the prices of a related ETF as well. Even small road blocks in research projects and have a disproportionate influence on the prices of stocks as well as ETF’s. A direct investment in biotechnology uses up a lot of time and effort in research and analysis and there is no guarantee that this will reduce the degree of unpredictability.

However the industry is promising and the choice of the right stock can result in stupendous returns. If you desire an exposure to the industry, your preferred investing method should be the biotech ETF route. A Biotech ETF is an exchange traded fund that invests in Biotech stocks and securities and can be bought and sold on the stock exchange just like a normal stock. Some of these ETF’s are invested in a narrow range of Biotech securities while others have chosen a much broader range in order to minimize the risk. Despite the risk, one of the major advantages of the biotech industry is that it is immune to recession and demand for research and development will continue to grow especially with population and life expectancy increases. In addition, many biotech companies are diversifying their product and research base so that they no longer put all their eggs in one basket.

Many industry experts believe that biotech companies that do not adapt to these changed circumstances or are unable to do so will run out of cash in the course of less than a year. This is all the more reason to see the diversity and risk protection of a Biotech ETF. Should a large shakeout happen, it would be good for the industry as a whole because the weeding out would provide the survivors with a better chance of survival. These companies are also likely to be the ones that do not depend on one of make or break projects. Since biotech companies are also prime acquisition candidates, a survivor stands a much better chance of being acquired by a large company thus providing investors with high returns on their investment.

After a shaky start at the beginning of the current century, the biotechnology industry is already showing signs of both consolidation and growth. Depending on your personal investment inclinations and your risk appetite, you can choose from a wide variety of ETF’s including leveraged ETF’s which will multiply both your profits and your losses. Do your homework on the available Biotech ETF’s to ensure that the investment allocation, the spread of securities and the weightage as well as the risk protection are all to your satisfaction.

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