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Should You Invest in the SPDR S&P Biotech ETF (XBI)?

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Launched on 01/31/2006, the SPDR S&P Biotech ETF (XBI - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Healthcare - Biotech segment of the equity market.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Biotech is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $6.04 billion, making it one of the largest ETFs attempting to match the performance of the Healthcare - Biotech segment of the equity market. XBI seeks to match the performance of the S&P Biotechnology Select Industry Index before fees and expenses.

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.

Costs

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 counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. 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, Mirati Therapeutics Inc accounts for about 2.16% of total assets, followed by Immunovant Inc (IMVT - Free Report) and Apellis Pharmaceuticals Inc (APLS - Free Report) .

The top 10 holdings account for about 15.82% of total assets under management.

Performance and Risk

The ETF has lost about -12.45% and is down about -9.78% so far this year and in the past one year (as of 11/20/2023), respectively. XBI has traded between $64.12 and $91.97 during this last 52-week period.

The ETF has a beta of 0.92 and standard deviation of 35.99% for the trailing three-year period, making it a high risk choice in the space. With about 137 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Biotech 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, XBI is a sufficient 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.

First Trust NYSE Arca Biotechnology ETF (FBT - Free Report) tracks NYSE Arca Biotechnology Index and the iShares Biotechnology ETF (IBB - Free Report) tracks Nasdaq Biotechnology Index. First Trust NYSE Arca Biotechnology ETF has $1.15 billion in assets, iShares Biotechnology ETF has $6.50 billion. FBT has an expense ratio of 0.56% and IBB charges 0.45%.

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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