Direct biotechnology investment or investment in Biotech ETFs

Filed under: Biotech ETF

Biotechnology is almost universally considered to be a high risk investment and if you have an appetite for high risk, you should consider investing directly. The kind of investment that we contemplate will be dictated not only by your appetite for risk but also by the amount of capital that you have available for investment and whether you are a seasoned investor or a complete novice. For instance, if you have a large amount of capital and considerable investing experience, you could consider funding a startup as an angel investor or as a venture capitalist. If you like dabbling in penny stocks, many biotechnology stocks fall in this category especially at the startup stage. You should however remember that, though comfortable with high risk ventures, many angel investors and venture capitalists will seek to justify their own investment portfolios in order to derisk any one particular investment and thus avoid putting all their eggs in one basket.

No matter what mode of investment you choose, here are some compelling reasons why you should consider investing in biotechnology:

-Because of the aging of the baby boomer generation, there is a considerable amount of activity going on in the life sciences field and much of the research and development is spearheaded by biotechnology companies. Because of this development, funding is again freely available for biotechnology companies after a lull and venture capitalists are bullish. In addition, many states are seeking to attract biotechnology investment because of the employment potential while legislators are seeking to simplify the law in sensitive areas such as stem cell research. We are also beginning to see increased funding for universities to conduct basic research in collaboration with biotech companies.

-International interest is growing rapidly as countries such as India, China and Israel get their act together and aggressively promote the growth of new biotech companies. This interest is spurred not only by the potential in the field of life sciences but also by the potential of developing new applications for preservation of the environment and development of agriculture.

-Many major pharmaceutical and drug companies are having problems with developing new drugs and a pipeline of new products. Many of them are sitting on large cash piles and would happily pay handsomely to take control of promising biotech companies.

If you are an average retail investor, you are unlikely to have the expertise, the amount of capital or the appetite for high risk to consider direct investments. If you wish to participate in the rewards from the biotechnology sector, consider investing in a biotechnology ETF instead. Consider the benefits that you will receive:

-Because you are investing in a pool of different stocks, you will receive the benefit of immediate diversification and the spreading of your risk. If you want to replicate the investment in the pool, you will need to invest large sums of money whereas an ETF is cheap and highly affordable.

-The ETF is liquid and it can be readily bought and sold on stock exchanges. Moreover, if you have a yen for active trading, remember that like any stock you can short sell an ETF. This will enable you to profit whether the price is rising or falling.

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