A smart beta exchange traded fund, the SPDR S&P Biotech ETF (
XBI Quick Quote 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?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is managed by State Street Global Advisors, and has been able to amass over $6.25 billion, which makes it one of the largest ETFs in the Health Care ETFs. This particular fund, 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for XBI are 0.35%, which makes it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 0%.
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.
This ETF has heaviest allocation in the Healthcare sector - about 100% of the portfolio.
Looking at individual holdings, Bridgebio Pharma Inc (
BBIO Quick Quote BBIO - Free Report) accounts for about 2.37% of total assets, followed by Acadia Pharmaceuticals Inc ( ACAD Quick Quote ACAD - Free Report) and Halozyme Therapeutics Inc ( HALO Quick Quote HALO - Free Report) .
XBI's top 10 holdings account for about 10.09% of its total assets under management.
Performance and Risk
The ETF has lost about -3.58% and is down about -14.66% so far this year and in the past one year (as of 08/15/2023), respectively. XBI has traded between $73.13 and $92.39 during this last 52-week period.
The fund has a beta of 0.94 and standard deviation of 36.34% for the trailing three-year period, which makes XBI a high risk choice in this particular space. With about 143 holdings, it effectively diversifies company-specific risk.
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 Quick Quote FBT - Free Report) tracks NYSE Arca Biotechnology Index and the iShares Biotechnology ETF ( IBB Quick Quote IBB - Free Report) tracks Nasdaq Biotechnology Index. First Trust NYSE Arca Biotechnology ETF has $1.39 billion in assets, iShares Biotechnology ETF has $7.46 billion. FBT has an expense ratio of 0.56% 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.
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.