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

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Launched on 02/05/2001, the iShares Biotechnology ETF (IBB - Free Report) is a smart beta exchange traded fund offering 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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is sponsored by Blackrock. It has amassed assets over $7.36 billion, making it one of the largest ETFs in the Health Care ETFs. This particular fund 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

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.

Operating expenses on an annual basis are 0.45% for this ETF, which makes it on par with most peer products in the space.

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

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 99.80% of the portfolio, the fund has heaviest allocation to the Healthcare sector.

When you look at individual holdings, Amgen Inc (AMGN - Free Report) accounts for about 8.84% of the fund's total assets, followed by Gilead Sciences Inc (GILD - Free Report) and Regeneron Pharmaceuticals Inc (REGN - Free Report) .

Its top 10 holdings account for approximately 53.86% of IBB's total assets under management.

Performance and Risk

The ETF has lost about -1.08% so far this year and is down about -1.33% in the last one year (as of 02/01/2024). In the past 52-week period, it has traded between $112.41 and $139.39.

The fund has a beta of 0.77 and standard deviation of 22.95% for the trailing three-year period, which makes IBB a high risk choice in this particular space. With about 266 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 $1.21 billion in assets, SPDR S&P Biotech ETF has $6.53 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.

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