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Is iShares Biotechnology ETF (IBB) a Strong ETF Right Now?

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The iShares Biotechnology ETF (IBB - Free Report) was launched on 02/05/2001, and is a smart beta exchange traded fund designed to offer 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.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Blackrock, IBB has amassed assets over $9.03 billion, making it one of the largest ETFs in the Health Care ETFs. Before fees and expenses, IBB seeks to match the performance of the Nasdaq Biotechnology Index.

The ICE Biotechnology Index contains securities of NASDAQ listed companies that are classified as either biotechnology or pharmaceuticals.

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 IBB are 0.44%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.30%.

Sector Exposure and Top Holdings

ETFs offer 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.

IBB's heaviest allocation is in the Healthcare sector, which is about 99.80% of the portfolio.

Taking into account individual holdings, Gilead Sciences Inc (GILD - Free Report) accounts for about 8.13% of the fund's total assets, followed by Amgen Inc (AMGN - Free Report) and Regeneron Pharmaceuticals Inc (REGN - Free Report) .

The top 10 holdings account for about 8.13% of total assets under management.

Performance and Risk

The ETF return is roughly 3.76% and is down about -1.66% so far this year and in the past one year (as of 01/17/2023), respectively. IBB has traded between $105.82 and $138.43 during this last 52-week period.

The ETF has a beta of 0.84 and standard deviation of 28.55% for the trailing three-year period, making it a high risk choice in the space. With about 281 holdings, it effectively diversifies company-specific risk.


IShares Biotechnology 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 SPDR S&P Biotech ETF (XBI - Free Report) tracks S&P Biotechnology Select Industry Index. First Trust NYSE Arca Biotechnology ETF has $1.55 billion in assets, SPDR S&P Biotech ETF has $8.76 billion. FBT has an expense ratio of 0.55% and XBI charges 0.35%.

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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