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

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Making its debut on 01/31/2006, smart beta exchange traded fund SPDR S&P Biotech ETF (XBI - Free Report) provides investors broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as 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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by State Street Global Advisors. XBI has been able to amass assets over $5.95 billion, making 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.

With one of the least expensive products in the space, this ETF has annual operating expenses of 0.35%.

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

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.

Looking at individual holdings, Arena Pharmaceuticals Inc. accounts for about 1.88% of total assets, followed by Biocryst Pharmaceuticals Inc. (BCRX - Free Report) and Exelixis Inc. (EXEL - Free Report) .

Its top 10 holdings account for approximately 12.48% of XBI's total assets under management.

Performance and Risk

So far this year, XBI has lost about -38.10%, and is down about -43.57% in the last one year (as of 05/18/2022). During this past 52-week period, the fund has traded between $62.81 and $138.68.

The ETF has a beta of 1.20 and standard deviation of 36.69% for the trailing three-year period, making it a high risk choice in the space. With about 191 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 $1.31 billion in assets, iShares Biotechnology ETF has $7.54 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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