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Should You Invest in the SPDR S&P Biotech ETF (XBI)?

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Looking for broad exposure to the Healthcare - Biotech segment of the equity market? You should consider the SPDR S&P Biotech ETF (XBI - Free Report) , a passively managed exchange traded fund launched on 01/31/2006.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Biotech is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 7, placing it in top 44%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $8.37 billion, making it one of the largest ETFs attempting to match the performance of the Healthcare - Biotech segment of the equity market. XBI seeks to match the performance of the S&P Biotechnology Select Industry Index before fees and expenses.

The S&P Biotechnology Select Industry Index represents the biotechnology sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Biotech Index is a modified equal weight index.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector--about 100% of the portfolio.

Looking at individual holdings, Horizon Therapeutics Public Limited Company accounts for about 1.64% of total assets, followed by Biogen Inc. (BIIB - Free Report) and Halozyme Therapeutics Inc. (HALO - Free Report) .

The top 10 holdings account for about 14.36% of total assets under management.

Performance and Risk

So far this year, XBI has added roughly 1.66%, and is down about -18.78% in the last one year (as of 01/12/2023). During this past 52-week period, the fund has traded between $62.81 and $100.49.

The ETF has a beta of 0.98 and standard deviation of 40.14% for the trailing three-year period, making it a high risk choice in the space. With about 156 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Biotech ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XBI is an excellent option for investors seeking exposure to the Health Care ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

First Trust NYSE Arca Biotechnology ETF (FBT - Free Report) tracks NYSE Arca Biotechnology Index and the iShares Biotechnology ETF (IBB - Free Report) tracks Nasdaq Biotechnology Index. First Trust NYSE Arca Biotechnology ETF has $1.53 billion in assets, iShares Biotechnology ETF has $8.93 billion. FBT has an expense ratio of 0.55% and IBB charges 0.44%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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