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Is SPDR S&P Biotech ETF (XBI) a Strong ETF Right Now?

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A smart beta exchange traded fund, the SPDR S&P Biotech ETF (XBI - Free Report) debuted on 01/31/2006, and offers broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors, and has been able to amass over $8.80 billion, which makes it one of the largest ETFs in the Health Care ETFs. Before fees and expenses, this particular fund seeks to match the performance of the S&P Biotechnology Select Industry Index.

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.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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

It has a 12-month trailing dividend yield of 0%.

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.

Taking into account individual holdings, Horizon Therapeutics Public Limited Company accounts for about 1.64% of the fund's total assets, followed by Biogen Inc. (BIIB - Free Report) and Halozyme Therapeutics Inc. (HALO - Free Report) .

Its top 10 holdings account for approximately 11.8% of XBI's total assets under management.

Performance and Risk

The ETF return is roughly 4.81% and is down about -5.41% so far this year and in the past one year (as of 01/23/2023), respectively. XBI has traded between $62.81 and $97.26 during this last 52-week period.

The fund has a beta of 0.98 and standard deviation of 40.17% for the trailing three-year period, which makes XBI a high risk choice in this particular space. With about 156 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Biotech ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which 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 $1.54 billion in assets, iShares Biotechnology ETF has $8.95 billion. FBT has an expense ratio of 0.55% and IBB charges 0.44%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.

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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