5 Best Biotechnology ETFs in 2023

Biotech ETFs provide exposure to pharmaceutical and healthcare innovation. Biotechnology is a rapidly expanding field that studies the fundamental components of biology and living organisms as well as strategies for using biology in everything from manufacturing to health care. It's simple to see why. Due to the fact that many biotech companies developed the vaccines and treatments that will help lessen the pandemic's effects, biotechnology has assumed a significant role in today's society. The focus of other biotechnology businesses is on finding solutions for significant issues like cancer or climate change. To compile this list of the top five exchange-traded funds (ETFs) for investing in biotechnology, we looked at a number of funds in the sector. We chose these funds, which are presented in no particular order, based on their size, investment costs, track record of returns, and biotechnology-related focuses. ETF Name AUM (as of Jan. 11, 2022) Expense Ratio Inception Date ARK Genomic Revolution ETF $5.5 billion 0.75% Oct. 31, 2014 iShares Biotechnology ETF $9.4 billion 0.45% Feb. 5, 2001 SPDR S&P Biotech ETF $6.1 billion 0.35% Jan. 31, 2006 ALPS Medical Breakthroughs ETF $165.6 million 0.50% Dec. 30, 2014 iShares Genomics Immunology and Healthcare ETF $298 million 0.47% June 11, 2019

Biotechnology ETF from iShares

As of January 11, 2022, the 3-year return was 16.62 percent.
cost-to-income ratio: 0.45%
$9.4 billion in assets under management as of January 11, 2022.
Date of creation: February 5, 2001

Investing in American biotech companies is the main objective of the iShares Biotechnology ETF. Most of its investments are in healthcare organizations concentrating on creating novel medications and disease treatments. The fund is the biggest on our list, managing assets worth more than $9 billion (AUM). This means that buying and selling shares of the fund will be simple for investors. It has an expense ratio of 0.45% or $4.50 for every $1,000 invested.

ETF for the ARK Genomic Revolution

Return over three years, as of January 11, 2022: 33.40
0.75 percent of total expenses
$5.5 billion in assets under management (AUM) as of January 11, 2022.
Beginning on October 31, 2014

An actively managed fund that makes investments in both domestic and foreign companies is the ARK Genomic Revolution ETF. Its scope extends beyond biotechnology just a little. Alternatively, it makes investments in companies that are "focused on and are expected to substantially benefit from extending and improving the quality of human and other life" through genomics. This indicates that the fund focuses on companies involved in the energy, materials, health care, and information technology industries. It has had good performance over the last three years, and with assets of $5.5 billion, it is one of the bigger funds on this list. However, compared to some alternatives, its active management results in a high fee. The expense ratio for the fund is 0.75 percent or $7.50 for every $1,000 invested.

S&P Biotech SPDR ETF

3-year return: 15.9% as of January 11, 2022
The ratio of expenses: 0.35 percent
Assets under management (AUM): $6.1 billion as of January 11, 2022.
Date of beginning: January 31, 2006

The SPDR S&P Biotech ETF is a fund that follows the S&P Biotechnology Select Industry Index. The majority of the businesses in this index are biotech businesses that produce drugs and therapeutics for the medical industry. The fund is the least expensive on our list because of its passive management. With a 0.35 percent expense ratio, it costs $3.50 for every $1,000 invested. Due to the fund's assets, which total more than $6 billion, investors don't need to worry about liquidity.

Genomics Immunology and Healthcare ETF, iShares

As of January 11, 2022, the 3-year return is N/A.
The ratio of expenses: 0.47 percent
Assets under management (AUM): $298 million as of January 11, 2022.
Launched on: June 11, 2019

With a focus on businesses "along the full value chain of genomics, immunotherapy, and healthcare industries," it invests in businesses all over the world. Due to this, investors looking for a fund with a global portfolio and a broader focus than just health care may be interested in it. The fund's assets total just under $300 million, which is not large enough for investors not to have to consider liquidity concerns when buying or selling shares. It should be noted that as a fund gets smaller, there will be fewer investors seeking to purchase or sell shares at any given time. There might not always be anyone looking to buy or sell. Due to the low liquidity, it may be challenging to buy or sell shares at the fund's market price. The expense ratio for the fund is 0.47 percent or $4.70 for every $1,000 invested.

Medical Breakthroughs ALPS ETF

By January 11, 2022, the 3-year return was 14.42%.
0.50 percent is the expense ratio.
Approximately $165.6 million in assets were under management as of January 11, 2022.
December 30, 2014, was the start date.

The ALPS Medical Breakthroughs ETF makes investments in mid-capitalization and small-cap companies in the biotechnology industry. A minimum of one drug is undergoing a Phase II or Phase III clinical trial at each of the companies included in the index that the fund monitors. This implies that companies seeking drug approval are exposed to investors. The business might see a significant increase in value if it is successful. A drug's failure to gain approval can potentially devalue the company and its stock. With the risk and potential reward spread out, this fund enables its investors to quickly assemble a diverse portfolio of businesses that are undergoing trials. A $1,000 investment in the fund will cost $5 in expenses or a 0.50 percent expense ratio. The smallest amount of any fund on this list, $165 million in assets under management, is the lowest of all. When purchasing and selling shares, investors may be concerned about liquidity.

Investment in Biotech: Pros and Cons

Pros

With successful drug or product trials, significant financial gain potential
Biotech is becoming more popular.
ESG investments in many biotech companies are favorable.

Cons

Failure to succeed in trials could result in losses.
Trials go on forever.
The window of opportunity to benefit from new developments is closing.

Pros Explanation

Successful drug or product trials have significant profit potential. Companies that are creating medicines or other medical technology frequently see increases in value following a successful clinical trial. The biotechnology market is expanding. A rapidly growing field is biotechnology. More than 8.5 percent annual growth is anticipated in the market for biotech products between 2020 and 2026. A lot of biotech companies make excellent ESG investments. Recent years have seen an increase in interest in environmental, social, and governance (ESG) investing. This kind of investment is prevalent in the biotech industry, which may enable them to outperform other sectors of the market.

Cons Explanation

Losses could result from unsuccessful attempts. Companies frequently lose value when they report disappointing clinical trial results. A failed trial might even cause the business to go out of business if it was centered on a specific drug or treatment. Trials drag on for a long time. A clinical trial is typically required before a biotech company can sell its product. Investors in these ETFs should have a long time horizon for their investments because this process can take several years. Time is running out to capitalize on new developments. In the United States, pharmaceutical and new drug patents are valid for 20 years. After that, rivals may produce generic versions of the product, lowering the likelihood of profit. This means that biotech companies can succeed in the long run and take on the risk that comes with continuous research and development.

Trends in Past Performance

Over the previous five years, the field of biotechnology has experienced significant growth. The Nasdaq Biotechnology Index increased from roughly 2,900 points in January 2017 to a peak of nearly 5,460 points in September 2021. Biotechnology hasn't fared as well in the near term, though. The industry was highly volatile in 2021, and the index ultimately dropped from its peak of almost 5,500 to below 4,600.

Does a Biotech ETF Make Sense for Me?

Although biotechnology is an exciting and developing field, investors who are interested in the sector should take risks and volatility into account. A simple way to create a diversified portfolio that lowers the risk of unsuccessful clinical trials is to purchase shares in a biotech ETF. Investors should be ready to commit to the biotech sector for the long term as a result of the irregular trading patterns in the market.

Final Verdict

Investors can gain exposure to the fascinating if volatile, biotech sector by using biotech exchange-traded funds (ETFs). The pandemic era has made biotech even more crucial, and there is much room for the sector to expand in the coming years.

Question and Answer Sheets (FAQs)

How are biotech ETFs structured?

ETFs that invest in the biotech industry do so by purchasing shares of numerous businesses. Investors can easily own shares in such ETFs to quickly build a diversified portfolio of biotech companies.

How do I purchase biotech ETFs?

Through your brokerage account, you can purchase biotech ETFs. You might find it easier to choose the broker you want to work with if you know that some brokerage firms run their own ETFs.

When ought I purchase biotech ETFs?

Choosing the right time to buy is one of the most challenging aspects of investing. ETFs can be volatile and investing involves risk in general. When you are prepared to accept that and have the ability to hold your investment for a long time, you should invest. We don't offer advice or services related to taxes, investments, or finances. The information is being provided without taking into account any specific investor's investment goals, risk tolerance, or financial situation, so it might not be appropriate for all investors. Future outcomes cannot be predicted based on past performance. Risks associated with investing include the potential loss of principal.