The 5 Best Biotech ETFs of 2024

Top biotechnology ETFs are performing well in 2024 due to a combination of accelerated drug approvals, strong M&A activity, and advances in AI-driven drug discovery, making the sector an attractive mix of growth and defensive investment amid economic uncertainty.

In this article, we spotlight the best biotech ETFs of 2024 by performance, how these exchange-traded funds invest, and the benefits and risks associated with investing in the biotechnology sector. 

What Is a Biotech ETF?

A biotech ETF is an exchange-traded fund that tracks an index of publicly traded biotechnology companies. The typical biotech company uses biological processes to develop new products and services, such as drugs, vaccines, or medical devices. Thus, biotechnology ETFs offer investors a way to invest in the biotechnology sector without having to pick individual stocks themselves.

Investing in biotech ETFs is accessible and cost effective for almost any type of investor. ETFs are traded like stocks, which means investors can buy and sell them throughout the day. Additionally, the management fees for ETFs are typically lower than mutual funds, making them a more cost-effective investment option.

The largest biotech ETF is the iShares Biotechnology ETF (IBB) with $7.1 billion in assets under management. The top-performing fund in the category is Virtus LifeSci Biotech Clinical Trials ETF (BBC), which has a total return of 19.62% year-to-date through October 24, 2024. This compares to a 10.79% gain for the broader health sector, as measured by the Health Care Select Sector SPDR ETF (XLV).

Best Biotech ETFs of 2024 by Performance

Data as of October 24, 2024. Leveraged and inverse ETFs were not included in our list because they are not generally suitable for the typical investor. 

Virtus LifeSci Biotech Clinical Trials ETF

The Virtus LifeSci Biotech Clinical Trials ETF (BBC) tracks an equally weighted index of US-listed biotech companies with lead drugs that are still in preclinical testing or research stage, prior to entering into human clinical trials. Given the unpredictable success rates in clinical trials, the fund is a high-risk, high reward bet on a concentrated group of small biotech companies.

• YTD return: 16.16%  
• Assets under management: $21.2 million
• Expense ratio: 0.79%

ALPS Medical Breakthroughs ETF

The ALPS Medical Breakthroughs ETF (SBIO) tracks, a market-cap weighted index of biotech companies with one or more drugs currently in either Phase II or Phase III Food and Drug Administration (FDA) clinical trials. This makes SBIO a high-risk, high-reward investment as it is a concentrated portfolio exposed to small-cap and micro-cap biotechnology companies. 

• YTD return: 16.81% 
• Assets under management: $117.6 million 
• Expense ratio: 0.50%

Range Cancer Therapeutics ETF

The Range Cancer Therapeutics ETF (CNCR) tracks an equal-weighted index of companies that generate their revenue from oncology products or are in constant development and production of cancer therapeutic medicine. Cancer Therapeutics is a term used to refer to the wide range of treatments and interventions used to treat various kinds of cancer.

• YTD return: 10.17% 
• Assets under management: $12.3 million 
• Expense ratio: 0.79% 

Tema Cardiovascular and Metabolic ETF

The Tema Cardiovascular and Metabolic ETF (HRTS) is an actively managed fund that concentrates on companies focused on the treatment of cardiovascular diseases and/or metabolic diseases from global companies at the forefront of combating diabetes, obesity, and cardiovascular diseases. This includes companies engaged in pharmaceuticals, emerging biotech, medical devices, and healthcare service providers.

• YTD return: 9.11% 
• Assets under management: $82.9 million  
• Expense ratio: 0.75%

SPDR S&P Biotech ETF

The SPDR S&P Biotech ETF (XBI) seeks to track the S&P Biotechnology Select Industry Index, which is an equal-weighted index of U.S. biotech stocks. The equal weighting adds exposure to small cap biotechs, namely Viking Therapeutics, Inc. (VKTX), which jumped more than 550% over the past three months. Unlike some category peers, XBI is a pure biotech play, with relatively small pharma exposure. 

• YTD return: 9.06% 
• Assets under management: $7.0 billion 
• Expense ratio: 0.35% 

Benefits and Risk of Investing in Biotech ETFs

Biotech ETFs offer a balanced approach for investors interested in healthcare innovation, but they require a tolerance for potential volatility and regulatory risk. Here's a breakdown of their benefits and risks:

• Benefits of investing in biotech ETFs include diversification across a broad array of biotechnology companies, which mitigates the risk tied to individual stocks, exposure to innovation with high growth potential driven by advancements in medicine, gene therapy, and AI-enhanced drug discovery, and resilience to economic downturns, as healthcare and biotech often maintain demand regardless of broader market conditions.
• Risks include high volatility, as biotech stocks can swing significantly based on drug trial results, FDA approvals, or regulatory changes; binary outcomes, where a company's success may hinge on a single product; and valuation pressures since biotech firms often operate at a loss while developing treatments, which makes them sensitive to changes in interest rates or investor sentiment toward speculative growth sectors.

Bottom Line on Investing in Biotech ETFs

Investing in biotech ETFs can provide investors with exposure to the dynamic and rapidly growing biotechnology industry, while also reducing the risks associated with investing in individual biotech stocks. However, investors should keep in mind that biotech investments can produce elevated volatility compared to the broader stock market indices, especially in the short term.