2 Key Drivers Behind Biotech ETF Rally

June 30, 2017

What’s Underneath

IBB only invests in companies that are listed on the Nasdaq, regardless of how attractive or cutting-edge a company may be outside the Nasdaq board. The fund is massive, with $10 billion in assets despite its pricier 0.47% expense ratio than competing XBI, which offers more pure-play exposure.

XBI bypasses a lot of pharmaceutical names for true biotech companies and equal-weights its holdings. The fund has nearly $4 billion in total assets, with an expense ratio of 0.35%.

Both BBC and BBP, which are much smaller and newer funds, with $25 million and $40 million in assets, respectively, are equal-weighted as well. BBC focuses on the up-and-coming breakthrough companies still in clinical trials, and BBP focuses on more established names. Both funds have an expense ratio of 0.85%, or $85 per $10,000 invested.

These ETFs are just a sampling of a segment comprising 17 funds today. Investors can pick and choose whether they want higher risk/reward exposure through funds that offer access to companies on the cutting edge of innovation, or less volatile routes via names that are well-established drugmakers.

Either way, as Yook says, the fundamental backdrop—at least for now—looks positive, as price reform is “off the table,” and a “friendly” FDA could be the new norm. Valuations, too, are relatively attractive compared to other sectors.

Contact Cinthia Murphy at [email protected]


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