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Should You Invest in the First Trust NYSE Arca Biotechnology ETF (FBT)?

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Designed to provide broad exposure to the Healthcare - Biotech segment of the equity market, the First Trust NYSE Arca Biotechnology ETF (FBT - Free Report) is a passively managed exchange traded fund launched on 06/19/2006.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Healthcare - Biotech is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 6, placing it in top 38%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.32 billion, making it one of the larger ETFs attempting to match the performance of the Healthcare - Biotech segment of the equity market. FBT seeks to match the performance of the NYSE Arca Biotechnology Index before fees and expenses.

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.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.55%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.59%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many 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, United Therapeutics Corporation (UTHR - Free Report) accounts for about 4.58% of 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

Year-to-date, the First Trust NYSE Arca Biotechnology ETF has lost about -14.79% so far, and is down about -17.28% over the last 12 months (as of 09/14/2022). FBT has traded between $123.32 and $174.94 in this past 52-week period.

The ETF has a beta of 0.83 and standard deviation of 26.76% for the trailing three-year period, making it a high risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust NYSE Arca Biotechnology ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FBT is a good option for those seeking exposure to the Health Care ETFs area of the market. Investors might also want to consider some other ETF options in the space.

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 $7.60 billion in assets, iShares Biotechnology ETF has $7.78 billion. XBI has an expense ratio of 0.35% 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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