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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?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is sponsored by State Street Global Advisors. It has amassed assets over $5.97 billion, making it one of the largest ETFs in the Health Care ETFs. XBI, before fees and expenses, 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

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

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

The fund has a 12-month trailing dividend yield of 0.04%.

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.

XBI's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.

When you look at individual holdings, Chemocentryx Inc. (CCXI - Free Report) accounts for about 1.74% of the fund's total assets, followed by Ocugen Inc (OCGN - Free Report) and Global Blood Therapeutics Inc (GBT - Free Report) .

XBI's top 10 holdings account for about 10.71% of its total assets under management.

Performance and Risk

Year-to-date, the SPDR S&P Biotech ETF has lost about -12.86% so far, and is down about -32.61% over the last 12 months (as of 01/13/2022). XBI has traded between $100.60 and $173.99 in this past 52-week period.

The fund has a beta of 1.11 and standard deviation of 33.60% for the trailing three-year period, which makes XBI a high risk choice in this particular space. With about 190 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 $1.63 billion in assets, iShares Biotechnology ETF has $9.40 billion. FBT has an expense ratio of 0.55% and IBB charges 0.45%.

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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