Equity: Global Biotech
ETF.com Insight
Two funds provide exposure to the global biotech industry, but both portfolios have significant idiosyncrasies that make them poor representatives of the space.
Market Vectors' BBH“both portfolios have significant idiosyncrasies”
is a large, liquid ETF with a reasonable fee, good tracking and several years of trading history. However, the fund uses a broad definition of the biotech industry which includes several large pharmaceutical companies. Since these pharmaceuticals are significantly larger than the (mostly midcap and small-cap) pure-play biotech firms it holds, the pharmas dominate in BBH's cap-weighted portfolio. Furthermore, the fund only holds US-listed firms, which greatly limits its international exposure.
ARKG is even less representative. It's an actively managed, thematic portfolio which seeks to profit from a "genomic revolution" thesis. The fund has very little overlap with our neutral benchmark, and includes holdings from such far-flung industries as semiconductors and food. Like BBH, ARKG only accepts US listings and therefore holds mostly US companies. Unsurprisingly given its active management, the fund is one of the most expensive equity ETFs around. The fund hasn't been popular and trades poorly.
If neither of these choices appeals to you, consider looking at funds in the US Biotech segment, such as IBB. (Insight updated 10/23/17)
| Performance [as of 10/20/17] | 1 Month | 3 Month | YTD | 1 Year | 3 Years | 5 Years | 10 Years | |||
|---|---|---|---|---|---|---|---|---|---|---|
| Benchmark: Thomson Reuters Global Biotechnology & Medical Research | 1.37% | 6.16% | 32.37% | 33.67% | 16.49% | 23.03% | -- | |||
| A 75.78104 | BBH | 724336279.22481 | BBHVanEck Vectors Biotech ETF | -1.16% | 1.56% | 23.22% | 23.64% | 8.75% | 20.33% | -- |
| A 75.78104 | BBH | 724336279.22481 | BBH (NAV) | -1.10% | 1.53% | 23.45% | 23.75% | 8.79% | 20.31% | -- |
| C 37.870749 | ARKG | 43538085 | ARKGARK Genomic Revolution Multi-Sector ETF | 3.18% | 18.48% | 56.61% | 48.95% | -- | -- | -- |
| C 37.870749 | ARKG | 43538085 | ARKG (NAV) | 2.75% | 18.37% | 55.73% | 48.36% | -- | -- | -- |
ETF.com Efficiency Insight
Market Vectors' BBH boasts a respectable asset base, strong tracking, and a very reasonable fee for a niche sector fund with a global scope. The fund distributed capital gains in 2012,“BBH boasts a respectable asset base, strong tracking, and a reasonable fee”
a taxable event for investors.
ARKG is actively managed, and its fee reflects that. While the fund doesn't have to worry about tracking an index, the steep fee acts as a direct drag on performance. With little investor interest in ARKG, we see a high risk of closure. (Insight updated 10/23/17)
Tracking Difference (12 Month)
| Ticker | Expense Ratio | Median | Max. Upside | Max. Downside | Max LT/ST Cap Gains Rate Rule | Legal Structure | Fund Closure Risk | Efficiency | |
|---|---|---|---|---|---|---|---|---|---|
| ARKG | ARK Genomic Revolution Multi-Sector ETF | 0.75% | -- | -- | -- | 20.00% / 39.60% | Open-Ended Fund | Low | 79.199401 |
| BBH | VanEck Vectors Biotech ETF | 0.35% | -0.33% | -0.24% | -0.49% | 20.00% / 39.60% | Open-Ended Fund | Low | 94.704289 |
| Ranked by Efficiency Score | |||||||||
ETF.com Tradability Insight
BBH offers plenty of liquidity for investors of all sizes. Spreads could be tighter, but are easily manageable with limit orders. By contrast, ARKG barely trades most days. Large trades are“ARKG barely trades most days”
likely to blow open the order book, so place careful limit orders and be prepared to wait for execution.
Institutional traders moving whole blocks should have no trouble doing creations or redemptions in BBH, as the fund's underlying basket is liquid (due in part to its hefty large-cap bias) and 100% US-listed. ARKG is also 100% US-listed, but its basket doesn't have nearly as much volume. In light of this, as well as the fund's poor secondary liquidity, market makers are likely to charge a significant premium for moving blocks of ARKG. (Insight updated 10/23/17)
| Ticker | Median Daily Volume ($) | Average Spread | Creation Unit/Day | Market Hours Overlap | Underlying Volume/Unit % | Creation Cost Per Unit (%) | Impediment to Creations | Score - Tradability | |
|---|---|---|---|---|---|---|---|---|---|
| ARKG | ARK Genomic Revolution Multi-Sector ETF | $756.09 K | 0.24% | 0.58 | 100.00% | 1.16% | 0.04% | None | 70.563989 |
| BBH | VanEck Vectors Biotech ETF | $2.12 M | 0.08% | 0.32 | 100.00% | 0.23% | 0.01% | None | 91.803725 |
| Ranked by Tradability Score | |||||||||
ETF.com Fit Insight
Neither fund captures the biotech sector well, and neither tries to. Ultimately, your choice here will depend on how well each fund's particular strategy matches your goals.
BBH is“Neither fund captures the biotech sector well”
a highly concentrated portfolio of biotech and pharmaceutical firms. In fact, big pharma companies—which our benchmark excludes—dominate the portfolio. Pure biotech and medical research firms are a minority. As a result, the fund tilts much larger than our benchmark. While the global biotech industry is centered in the US, BBH's US-listing requirement means the fund holds US firms almost exclusively.
ARKG looks even less like our neutral benchmark, since it specifically targets firms involved in genomics research and technology. Like BBH, it holds only a minority of its portfolio in pure-play biotech firms. However, the remainder is spread among diverse industries like pharmaceuticals, equipment makers, software companies—even online retailer Amazon. Like BBH, ARKG only holds US listings, tilting it strongly toward US firms. Keep in mind that the fund is actively managed, so these positions could change at any time. (Insight updated 10/23/17)
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