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Is First Trust NYSE Arca Biotechnology ETF (FBT) a Strong ETF Right Now?

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Launched on 06/19/2006, the First Trust NYSE Arca Biotechnology ETF (FBT - Free Report) is a smart beta exchange traded fund offering 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.

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

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.

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 managed by First Trust Advisors. FBT has been able to amass assets over $1.37 billion, making it one of the larger ETFs in the Health Care ETFs. FBT, before fees and expenses, seeks to match the performance of the NYSE Arca Biotechnology Index.

The NYSE Arca Biotechnology Index is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for FBT are 0.55%, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.54%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

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

Taking into account individual holdings, United Therapeutics Corporation (UTHR - Free Report) accounts for about 4.58% of the fund's total assets, followed by Seagen Inc. (SGEN - Free Report) and Grifols, S.a. (adr) (GRFS - Free Report) .

The top 10 holdings account for about 39.08% of total assets under management.

Performance and Risk

So far this year, FBT has lost about -11.79%, and is down about -15.29% in the last one year (as of 09/09/2022). During this past 52-week period, the fund has traded between $123.32 and $174.94.

The fund has a beta of 0.83 and standard deviation of 26.64% for the trailing three-year period, which makes FBT a high risk choice in this particular space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust NYSE Arca Biotechnology ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR S&P Biotech ETF (XBI - Free Report) tracks S&P Biotechnology Select Industry Index and the iShares Biotechnology ETF (IBB - Free Report) tracks Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $7.75 billion in assets, iShares Biotechnology ETF has $8.07 billion. XBI has an expense ratio of 0.35% 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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