With investments in biotech stocks becoming increasingly risky Maxim Manturov, Head of Investment Research at Freedom Finance Europe, explains why biotech ETFs are a safer option and outlines the top ETFs to watch out for.
“Biotechnology is one of the economy’s relatively new and rapidly developing sectors and recently there has been a monumental amount of cash flowing into the industry. As we continue through the year there is a slim chance this momentum will stagger. However, while the industry may be booming, investing in biotech has an underlying element of risk. So, for those wanting to profit in the sector’s long term growth, investing in Exchange Traded Funds (ETFs) rather than stocks is the most sensible option,” explains Maxim Manturov, Head of Investment Research at Freedom Finance Europe.
“Biotechnology investments are unique in that they are fraught with risk. The reason behind this is that before releasing a product to the market, corporations must invest large sums of money in development and successfully complete all rounds of testing, which takes a significant amount of time and resources. As a result, only a small percentage of startups succeed, and many biotech companies are considerably undervalued. Those who conquer all of the hurdles, on the other hand, see exponential rise in value – over 100%, and often over 1000%. Biotechnology remains attractive among investors because of this feature.
“If you wish to invest in a high-risk sector but lack the necessary expertise, purchasing funds is the ideal option but what are the largest and most popular biotech ETFs to add to your portfolio?”
iShares Nasdaq Biotechnology ETF
“iShares Nasdaq Biotechnology ETF offers access to the biotechnology subsector of the healthcare industry. Due to technical advancements and greater investment in medical projects, the value of certain stocks may rise. With 279 different ETFs, the iShares Nasdaq Biotechnology ETF has the most assets under management among peers, giving a high level of diversification within the industry. IBB is mainly focused on US stocks because it mirrors the dynamics of the NASDAQ Biotechnology Index. The presence of a limited number of multinational enterprises, on the other hand, adds a layer of global diversification. ETFs, when seen as a whole, have the best risk-to-reward ratio.”
ARK Genomic Revolution ETF
“The ARK Genomic Revolution ETF (ARKG) is a fund, actively managed by Catherine Wood’s consulting firm, ARK Invest. They choose companies that create the maximum revenues from breakthroughs in energy, automation, manufacturing, materials, and transportation.
“ARK Invest outperforms the market, which is something that most asset management firms cannot do. ARKG makes investments in firms that will benefit from technological and scientific developments in gene editing, genetic therapy, molecular diagnostics, and stem cell development. According to the Fact Sheet, ARK Genomic Revolution has an average of 40–45 distinct pieces. ARKG was able to demonstrate a profit margin of more than 444.5% thanks to skilled management throughout a 5-year period.”
SPDR S&P Biotech ETF
“XBI is one of the few biotech ETFs that provides access to a market share that can perform well during periods of consolidation while also making significant gains in the event of a major medication approval. The fund invests solely in US equities and mostly in mid and small-cap stocks.
“The XBI portfolio is fairly constrained, but the weighted benchmark methodology guarantees that assets are distributed evenly across all components. This role is especially crucial in the biotech industry, where certain companies can achieve enormous success in a short period. This ETF’s underlying index is S&P Biotechnology Select Industry.