Equity: U.S. Biotech

PBE Top Performer Intra-day
Price $44.79
Today’s Change +0.09%(0.20)
3:59pm 11/20/2017
BBP Bottom Performer Intra-day
Price $38.44
Today’s Change -0.36%(-0.93)
3:37pm 11/20/2017
  • Overview
  • Efficiency
  • Tradability
  • Fit

ETF.com Insight

None of the seven US Biotech ETFs provides comprehensive, unbiased access to the space. Instead, each captures a piece of it—and of related industries like pharmaceuticals and medicalIn light of the drastic differences in exposure that each fund offers, costs and liquidity are secondary issues technology. Tread carefully here as each fund defines biotech differently and the differences have material impacts on performance: in some years the difference between the best-performing and the worst-performing biotech ETF exceeds 15 percent. The good news is that most of these biotech ETFs are relatively efficient and liquid.

IBB, the most popular of the bunch, selects only the biotech stocks listed on the NASDAQ. Fortunately, most biotech stocks are NASDAQ-listed and IBB has the largest holdings base of all the biotech ETFs. IBB’s breadth and plain vanilla portfolio construction earns it the coveted Analyst Pick designation. The downside to IBB is that it misses out on current and future biotech companies listed on NYSE.
FBT equal-weights a narrow portfolio of only the 20 largest biotech-related companies. This process produces a concentrated portfolio of huge biotech-related companies. XBI creates a broader portfolio of nearly 80 companies but also equal-weights its portfolio. XBI’s broad holdings base coupled with its equal-weighting scheme produces the smallest portfolio in the segment as measured by weighted average market cap. Of all biotech ETFs, XBI has the largest allocation to pure “biotech” companies whereas other funds make heavier allocations to pharmaceuticals and medical equipment companies.
PBE is a realtively expensive fund and does the most to try to rearrange its portfolio in a strategic manner. It uses a combination of fundamental and technical factors to select the companies included in its portfolio then equal-weights those companies within tiers. This approach appears to have had middling success over recent time periods as the fund outperformed some of its peers but underperformed others.

Relatively new funds from Bioshares, BBC and BBP, focus on whether a firm's drugs are currently in the trial stage or already in production. Each resulting portfolio diverts widely from our benchmark in terms of average market cap and numbers of constiuents.

In a segment with such diversity of fund construction methodologies, Fit largely determines performance differences. Pay attention to how your prospective ETF constructs its portfolio. In light of the drastic differences in exposure that each fund offers, costs and liquidity are secondary issues here: Generally speaking, most of the funds in this segment are efficient and reasonably liquid.

One last note: Investors may also consider the Biotech HOLDRS (BBH), which can be found in the global biotech segment but primarily provides exposure to US biotech companies. (Insight updated 11/20/17)

All Funds (8)

IBB $9.82 B 9824550600 NASDAQ-listed firms only

A 76
E
93
93
T
95
95
F
76
76

FBT $1.2 B 1196962444.278 Equal-weighted

A 63
E
91
91
T
91
91
F
63
63

XBI $4.18 B 4181818098.6 Equal-weighted

A 50
E
98
98
T
98
98
F
50
50

PBE $225.41 M 225411800 Quant-driven

B 59
E
91
91
T
76
76
F
59
59

BBC $30.02 M 30022409.172 Expensive

N/A 0
E
0
-1
T
0
-1
F
0
-1

SBIO $123.33 M 123331005 Cheaper fund focusing on clinical trials

N/A 0
E
0
-1
T
0
-1
F
0
-1

BBP $36.8 M 36796504.932 Product Stage Firms Only

N/A 0
E
0
-1
T
0
-1
F
0
-1

CNCR $40.46 M 40458000 Niche Coverage

N/A 0
E
0
-1
T
0
-1
F
0
-1

ETF.com Grade as 11/16/17

Equity: U.S. Biotech

Performance  [as of 11/17/17] 1 Month 3 Month YTD 1 Year 3 Years 5 Years 10 Years
Benchmark: Thomson Reuters US Biotechnology & Medical Research-6.07%4.59%22.97%15.27%10.19%23.89%--
A 75.817009IBB9824550600IBBiShares NASDAQ Biotechnology ETF-7.96%2.14%17.50%8.11%2.65%18.95%14.42%
A 63.161367FBT1196962444.278FBTFirst Trust NYSE Arca Biotechnology Index Fund-3.46%9.14%34.67%21.45%8.18%23.32%17.07%
A 49.611754XBI4181818098.6XBISPDR S&P BIOTECH ETF-6.12%8.58%37.88%22.80%13.69%24.38%15.72%
B 59.473898PBE225411800PBEPowerShares Dynamic Biotechnology & Genome Portfolio-9.73%-1.81%15.90%3.33%-2.36%15.65%9.13%
N/A 0BBC30022409.172BBCVirtus LifeSci Biotech Clinical Trials ETF-4.97%14.39%48.56%26.60%------
N/A 0SBIO123331005SBIOALPS Medical Breakthroughs ETF-2.50%10.15%33.75%17.86%------
N/A 0BBP36796504.932BBPVirtus LifeSci Biotech Products ETF-7.23%2.02%18.47%9.00%------
N/A 0CNCR40458000CNCRLoncar Cancer Immunotherapy ETF-6.95%11.66%15.94%0.01%------
All returns over 1 year are annualized. All returns are total returns unless otherwise stated.

ETF.com Efficiency Insight

Investors are fortunate to have a suite of highly efficient biotech ETFs to choose from. The two standouts here are XBI and IBB which charge the two lowest expense ratios in the segment anda suite of highly efficient biotech ETFs to choose from track their indices tightly.

In contrast, FBT and PBE charge expense ratios a few notches higher and trail their indices by even more than their expense ratio would otherwise suggest.

All of these established funds in the segment have preserved their tax efficiency in recent years by avoiding capital gains payouts and all of the funds have attracted asset bases in excess of $300M which makes it extremely unlikely that any will be shuttered soon.

Those four aside, there are three newcomers in the segment that have had varying levels of sucess. SBIO, from ALPS, has taken off somewhat, gathering enough assets to ward off fund closure. On the other end are the two funds from Bioshares, BBC and BBP. Both have struggled mightily to get investor attention. (Insight updated 11/20/17)

All Funds (8)

98
98.087851
93
92.861186
91
90.960025
91
90.821569
N/A
0
N/A
0
N/A
0
N/A
0

ETF.com Grade as 11/16/17

Equity: U.S. Biotech

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
BBC Virtus LifeSci Biotech Clinical Trials ETF 0.79% -- -- -- 20.00% / 39.60% High 0
BBP Virtus LifeSci Biotech Products ETF 0.79% -- -- -- 20.00% / 39.60% High 0
CNCR Loncar Cancer Immunotherapy ETF 0.79% -- -- -- 20.00% / 39.60% High 0
FBT First Trust NYSE Arca Biotechnology Index Fund 0.56% -0.60% -0.46% -2.52% 20.00% / 39.60% Low 90.960025
IBB iShares NASDAQ Biotechnology ETF 0.47% -0.30% -0.18% -0.44% 20.00% / 39.60% Low 92.861186
PBE PowerShares Dynamic Biotechnology & Genome Portfolio 0.58% 0.40% 0.57% 0.14% 20.00% / 39.60% Low 90.821569
SBIO ALPS Medical Breakthroughs ETF 0.50% -- -- -- 20.00% / 39.60% Low 0
XBI SPDR S&P BIOTECH ETF 0.35% -0.07% 0.22% -0.20% 20.00% / 39.60% Low 98.087851

ETF.com Tradability Insight

All of the established biotech ETFs are readily tradable for large and small investors alike.

IBB takes the proverbial liquidity cake as it trades more than $500M most days andAll of the biotech ETFs are readily tradable trades at the tightest spreads in the segment. A tier lower, XBI and FBT also trade significant volume most days and trade at reasonable spreads. Even the least liquid fund in the segment, PBE, sees more than $2M in volume most days and trades at workable average bid/ask spreads.

The two newcomers, BBP and BBC from Bioshares, have struggled so far in their daily trading volume.

Each of the funds in the segment holds relatively liquid US securities which makes it easy for liquidity providers to hedge positions and, in turn, means they can offer efficient block trading services. If you’re thinking about trading 50,000 shares or more, reach out to a liquidity provider of the ETF issuer’s capital markets desk to find efficient execution. (Insight updated 11/20/17)

All Funds (8)

98
97.608721
95
95.036925
91
90.807296
76
75.522143
N/A
0
N/A
0
N/A
0
N/A
0

ETF.com Grade as 11/16/17

Equity: U.S. Biotech

Ticker Median Daily Volume ($) Average Spread Creation Unit/Day Market Hours Overlap Underlying Volume/Unit % Creation Cost Per Unit (%) Impediment to Creations Score - Tradability
BBC Virtus LifeSci Biotech Clinical Trials ETF $280.15 K 0.32% 0.20 100.00% 0.25% 0.04% None 0
BBP Virtus LifeSci Biotech Products ETF $120.6 K 0.30% 0.06 100.00% 0.27% 0.03% None 0
CNCR Loncar Cancer Immunotherapy ETF $457.97 K 0.28% 0.36 100.00% 0.80% 0.01% None 0
FBT First Trust NYSE Arca Biotechnology Index Fund $5.71 M 0.10% 0.94 100.00% 0.46% 0.01% None 90.807296
IBB iShares NASDAQ Biotechnology ETF $269.71 M 0.06% 17.05 100.00% 0.30% 0.00% None 95.036925
PBE PowerShares Dynamic Biotechnology & Genome Portfolio $622.33 K 0.21% 0.26 100.00% 0.45% 0.02% None 75.522143
SBIO ALPS Medical Breakthroughs ETF $703.8 K 0.29% 0.45 100.00% 0.19% 0.03% None 0
XBI SPDR S&P BIOTECH ETF $280.94 M 0.04% 67.67 100.00% 0.14% 0.01% None 97.608721

ETF.com/ Block Liquidity

FBT
5
4
3
2
1
IBB
5
4
3
2
1
SBIO
5
4
3
2
1
XBI
5
4
3
2
1
BBC
5
4
3
2
1
BBP
5
4
3
2
1
PBE
5
4
3
2
1
CNCR
5
4
3
2
1

This measurement shows how easy it is to trade 25,000 shares of each ETF.

ETF.com Fit Insight

The US Biotech ETFs are widely varying and very different from our benchmark for the segment. That said, our segment benchmark defines biotech quite narrowly, only including Biotech &exposure differences in the segment are significant Medical Research companies. In contrast, the seven funds in the US Biotech segment define the space much more broadly due to diversification requirements and contrasting methodologies.

IBB is the most diverse and far-reaching ETF in the segment, with roughly 150 holdings and nearly 70% exposure to pharmaceuticals like Mylan Labs. As one of only two cap-weighted funds (the other being relative newcomer SBIO), IBB is the best choice for investors seeking broad representative exposure to the US Biotech space. IBB’s downside is that it only includes NASDAQ-listed funds, so investors will miss out on any current or future biotech companies listed NYSE. IBB’s breadth causes it to tilt large relative to our benchmark, and its weighted average market cap casts a shadow over the equally-weighted XBI and FBT, as well as the tiered portfolio of PBE, which give smaller firms larger weights.

XBI also hosts a broad portfolio of nearly 80 companies. However, its equal-weighting scheme creates the smallest portfolio in the segment: Its weighted average market cap is less than a quarter of IBB’s. Still, XBI provides the purest exposure to “biotech” companies: Over 70 percent of its portfolio is allocated to companies that meet our strict definition of biotech in comparison to less than 50 percent for competing funds.

The other two notable funds in the segment, PBE and FBT, offer exposure to much narrower and more concentrated portfolios. FBT selects the 20 largest biotech-related companies and equal-weights them. PBE uses a combination of fundamental and technical factors to select roughly 30 holdings then weighted them equally within tiers. PBE provides the largest exposure to medical equipment companies.

Ultimately, the exposure differences in the segment are significant so prospective investors should pay close attention to how each fund constructs its portfolio to find the methodology that aligns best with their view of the biotech sector. There are plenty of valid and viable choices here. (Insight updated 11/20/17)

All Funds (8)

76
75.817009
63
63.161367
59
59.473898
50
49.611754
N/A
0
N/A
0
N/A
0
N/A
0

ETF.com Grade as 11/16/17

Equity: U.S. Biotech