Back to top

Image: Bigstock

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

Read MoreHide Full Article

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?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: 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.

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

Because the fund has amassed over $7.06 billion, this makes it one of the largest ETFs in the Health Care ETFs. IBB is managed by Blackrock. IBB seeks to match the performance of the Nasdaq Biotechnology Index before fees and expenses.

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

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.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.45%.

It has a 12-month trailing dividend yield of 0.26%.

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.

Looking at individual holdings, Amgen Inc (AMGN - Free Report) accounts for about 9.48% of total assets, followed by Vertex Pharmaceuticals Inc (VRTX - Free Report) and Gilead Sciences Inc (GILD - Free Report) .

Its top 10 holdings account for approximately 53.66% of IBB's total assets under management.

Performance and Risk

The ETF has lost about -6.27% so far this year and was up about 3.21% in the last one year (as of 09/29/2023). In the past 52-week period, it has traded between $116.96 and $138.43.

IBB has a beta of 0.81 and standard deviation of 23.35% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 271 holdings, it effectively diversifies company-specific risk.

Alternatives

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 $1.27 billion in assets, SPDR S&P Biotech ETF has $5.68 billion. FBT has an expense ratio of 0.56% 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.

Published in