Common Biotech ETF questions

Filed under: Biotech ETF

The stock market world is a fast moving and exciting one. This applies more than anywhere in the field of biotech ETF investments. You may have heard a lot about this type of fund and the spectacular gains which the biotech ETF range has been making. If you are interesting in putting some money into them then you might like to have a look at this quick fact sheet.

Q. What is biotech?

A. This is an industry which, loosely speaking, uses biology in cutting edge technology. It is a wide and often complicated business which can cover anything from trying to obtain fuels from algae to producing life saving medicines from genetically modified material.

Q. What is an ETF?

A. An ETF is an Exchange Traded Fund. Instead of buying stock in just one company you buy into a fund which covers several of the industry’s firms.

Q. Why is a biotech ETF better than simply buying stock in a biotech company?

A. The reason why biotech ETFs are so popular is because it is seen as a market with huge potential, but no one knows which firms are most going to benefit in the future. One company’s breakthrough can mean huge stock market rises for them but a fall for their rivals. ETFs are seen as a way of not putting all your genetically modified eggs in one basket.

Q. Is there more than one biotech ETF on the market?

A. There sure is. There are quite a number to choose from and you will find listed below a short summary of the most commonly discussed ones.

Biotech HOLDRs – BBH. This is viewed as one of the least diverse funds, with two of the industry’s big firms taking up a large percentage of the overall stock. If those two go up then this fund will rocket, but ETF investors tend to look for more diversity in this volatile industry.

IShares NASDAQ Biotechnology – IBB. This is a fund which is possibly a little edgier and a little riskier than some of the others, throwing a few of the smaller companies into the mix.

PowerShares Dynamic Biotech & Genome – PBE. If you want a lot of diversity then this is the best biotech ETF for you. A wide mixture means that a lot of the big boys and some of the little companies are found here.

SPDR Biotech ETF – XBI. This is a popular choice, as it includes the big guns and isn’t considered too risky.

First Trust AMEX Biotechnology – FBT. There aren’t a huge number of different stocks represented here, but the fund is fairly well split out among those that are here. It also contains a few stocks which are generally considered as being a bit riskier than some of the other ones available.

What this information tells us is that simply deciding to invest in a biotech ETF isn’t quite the whole story. Next you have to do a little investigation to find the right one for your personality and the type of investing you want to carry out.

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