Biotech companies use or modify biological processes to create new pharmaceuticals or therapies. Some of the most prominent biotech companies include Vertex Pharmaceuticals Inc. (VRTX) and Regeneron Pharmaceuticals Inc. (REGN).
Investing in the biotech sector can be risky. The scientific and regulatory issues involved with gaining approval from the U.S. Food and Drug Administration (FDA) can be substantial, making it risky and difficult to predict which biotech stocks will outperform. One of the easiest ways to invest in the sector is through biotech exchange-traded funds (ETFs). These funds have holdings in a large array of biotech companies, offering investors a well-diversified portfolio in one easy-to-execute trade.
- The biotech sector underperformed the broader market over the past year.
- The biotech exchange-traded funds (ETFs) with the best one-year trailing total returns are ARKG, IDNA, and BBH.
- The top holding of ARKG is Teladoc Health Inc., and the top holding of IDNA and BBH is Moderna Inc.
Ten biotech ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The biotech sector, as measured by the Nasdaq Biotechnology Index, has underperformed the broader market with a total return of 28.0% over the past 12 months compared to the S&P 500’s total return of 34.0%, as of Aug. 10, 2021. The best-performing biotech ETF, based on performance over the past year, is the ARK Genomic Revolution ETF (ARKG).
We examine the top three biotech ETFs below. All numbers are as of Aug. 10, 2021.
ARK Genomic Revolution ETF (ARKG)
- Performance Over One-Year: 46.2%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 0.91%
- Three-Month Average Daily Volume: 2,939,797
- Assets Under Management: $8.9 billion
- Inception Date: Oct. 31, 2014
- Issuer: ARK Investment Management
ARKG is an actively managed ETF focused on companies that are expected to benefit from technologies and scientific developments in genomics that could extend and enhance the quality of human and other life. The fund provides exposure to companies engaged in gene editing, therapeutics, stem cells, and bioinformatics, and it holds approximately 60 growth stocks of various market capitalizations.
ARKG’s top three holdings are Teladoc Health Inc. (TDOC), a provider of telehealthcare services; Pacific Biosciences of California Inc. (PACB), a maker of systems for gene sequencing; and Fate Therapeutics Inc. (FATE), a biopharmaceutical company developing immunotherapies for cancer.
iShares Genomics Immunology and Healthcare ETF (IDNA)
- Performance Over One-Year: 39.5%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.16%
- Three-Month Average Daily Volume: 62,820
- Assets Under Management: $359.2 million
- Inception Date: June 11, 2019
- Issuer: BlackRock Financial Management
IDNA is a multi-cap blended fund that tracks the NYSE FactSet Global Genomics and Immuno Biopharma Index, which is made up of companies that may benefit from long-term growth and innovation in genomics, immunology, and bioengineering. The fund invests in companies from both developed and emerging markets, although the large majority of its holdings are domiciled in the United States or Germany.
IDNA’s top holdings include Moderna Inc. (MRNA), a pharmaceutical and biotechnology company that specializes in vaccine technologies based on messenger ribonucleic acid (mRNA); Intellia Therapeutics Inc. (NTLA), a biotechnology company focused on CRISPR (clustered regularly interspaced short palindromic repeats) gene-editing technology; and sponsored American depositary receipts (ADRs) of BioNTech SE (BNTX), a German biotechnology company that manufactures immunotherapies.
VanEck Biotech ETF (BBH)
- Performance Over One-Year: 35.2%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.28%
- Three-Month Average Daily Volume: 15,785
- Assets Under Management: $629.3 million
- Inception Date: Dec. 20, 2011
- Issuer: VanEck
BBH tracks the MVIS US Listed Biotech 25 Index, an index of companies involved in the development and production, sales, and marketing of therapies based on genetic analysis and diagnostic equipment. The fund is highly concentrated in a few names, with the top 10 of its 24 holdings accounting for more than 60% of all invested assets.
BBH’s top holdings include Moderna Inc., described above; Amgen Inc. (AMGN), a biopharmaceutical company focused on treating serious illnesses and hard-to-cure diseases; and sponsored ADRs of BioNTech SE, described above.
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