The advent of fintech companies and new trading platforms have made investing in various asset classes far easier for Canadian investors, whether they choose to invest in self-directed portfolios of individual stocks or baskets of securities based on their preferences, like through Exchange-Traded Funds (ETFs).
Investing through ETFs makes it easier for investors to gain exposure to a basket of securities at a fraction of the cost of investing in traditional mutual funds with the same features. Various funds offer you a more narrow exposure to securities that can reflect the performance of a specific segment or industry.
The biotech industry is effectively a segment of the healthcare sector that has been booming in recent years. Biotech companies have been beating the broader healthcare sector and lagging only behind the explosive tech sector companies, making them some of the hottest securities.
My guide to the best biotech ETFs in Canada will discuss a few of the most important funds focusing on the segment that you can consider investing in to gain exposure to the biotech space.
Biotech ETFs let you invest in a group of healthcare companies through a single investment. You can trade these ETFs throughout the day like an individual stock, but there is a fundamental difference between investing in individual stock and ETFs.
When you purchase an individual stock, you are pinning all your hopes on the performance of one company. When you purchase an ETF, you are investing in a group of companies tracking a particular index which, in this case, is the healthcare sector with a focus on the biotech space.
Investing in the biotech space could be an ideal move for many investors. The onset of a global health crisis has seen the demand for services that biotech companies provide surge.
Biotech companies’ work on research, clinical trials, treatments, and cures for diseases have caught the interest of investors worldwide.
Retail and institutional investors have identified the surge in demand and are rushing to buy shares of companies that may benefit from the biotech industry’s rise in popularity to capitalize on the profits.
Investing in a biotech ETF can help you diversify your investment capital across the sector, providing you with a relatively reduced degree of capital risk compared to allocating your funds to individual stocks.
In case one company does not perform well, a good performance by other companies in the basket of securities can mitigate your losses, letting you generate safer shareholder returns.
Being the country where ETFs originated, it is surprising that there are no biotech ETFs listed on Canadian stock markets. Fortunately, if you are a Canadian investor interested in gaining hands-off and diversified exposure to the biotech industry, you can still invest in biotech ETFs listed on international stock markets.
This section of my guide to the best biotech ETFs in Canada will list down some of the top-performing biotech ETFs that you could consider adding to your portfolio if you want to gain exposure to the red-hot biotech industry.
1. BlackRock iShares Biotechnology ETF (IBB)
Some key facts about BlackRock iShares Biotechnology ETF as of November 3, 2021:
- Ticker: NASDAQ:IBB
- Inception Date: February 05, 2001
- Assets Under Management: US$10.54 billion
- Management Fee: 0.45%
BlackRock iShares Biotechnology ETF (IBB) is one of the leading ETFs in the biotech space, and it is the most substantial fund in terms of its massive US$10.54 billion assets under management.
The fund is designed to provide you with investment returns by tracking the performance of an index of US-listed equity securities in the biotechnology sector. It means that the fund offers a narrow focus on biotechnology stocks, making it an ideal asset to use to express an industry view.
The fund invests in 268 US-listed biotech companies of all market capitalizations, from small-cap stocks to larger businesses.
The fund allocates 100% of its resources to equity securities, making it a high-risk investment combined with the fact that it does not diversify into other sectors of the economy or into publicly listed companies outside the US.
Additionally, many of its top holdings have already seen considerable growth. It means that you might not see similar capital appreciation in the coming years as you might expect with breakout biotech investing.
2. ARK Genomic Revolution ETF (ARKG)
Some key facts about ARK Genomic Revolution ETF as of November 2, 2021:
- Ticker: BATS:ARKG
- Inception Date: October 31, 2014
- Assets Under Management: US$7.14 billion
- Management Fee: 0.75%
ARK Genomic Revolution ETF (ARKG) is another ETF in the biotechnology industry and it boasts a massive AUM of US$7.14 billion.
ARKG ETF is an actively managed fund that seeks to provide you with long-term capital appreciation by investing at least 80% of its assets in domestic and foreign equity securities across multiple sectors.
The fund has a significant focus on the healthcare sector, with a principal focus on business activities in the biotechnology sector.
ARKG ETF is a more focused fund that typically holds between 40 to 60 equity securities at a time. However, its asset allocation is diversified into some other sectors beyond the biotech sector, adding a layer of security for your investment capital by delving into the performance of other industries.
3. SPDR S&P Biotech ETF (XBI)
Some key facts about SPDR S&P Biotech ETF as of November 3, 2021:
- Ticker: NYSEARCA:XBI
- Inception Date: January 31, 2006
- Assets Under Management: US$7.77 billion
- Management Fee: 0.35%
SPDR S&P Biotech ETF (XBI) is another major fund on my list of the best biotech ETFs in Canada. It boasts an AUM of US$7.77 billion, making it the third-largest in terms of AUM. It is also one of the most diversified biotech ETFs on the list.
The fund seeks to provide you with long-term capital growth by tracking the performance of a modified equal-weighted index with unconcentrated industry exposure across small-, mid-, and large-cap stocks in the biotech space, investing in over 200 companies.
The fund manager regularly rebalances the portfolio to spread its resources equally around each position among its constituent securities. The fund offers decent exposure to well-established biotechnology companies and lesser-known picks with high-growth potential.
XBI ETF allows you to take more strategic positions at a more targeted level than traditional sector-based investing, making it an excellent asset for many investors.
4. VanEck Vectors Biotech ETF (BBH)
Some key facts about VanEck Vectors Biotech ETF as of November 3, 2021:
- Ticker: NASDAQ:BBH
- Inception Date: December 20, 2011
- Assets Under Management: US$592.6 million
- Management Fee: 0.35%
VanEck Vectors Biotech ETF (BBH) is smaller than the ETFs previously mentioned on the list. With an AUM of $592.6 million, the fund invests in 25 publicly listed companies in the biotech industry.
It seeks to provide you with capital growth by tracking the performance of the MVIS US Listed Biotech 25 Index, and its holdings reflect the weighting of the companies as they are held by the underlying index.
BBH ETF is a higher-risk fund due to a narrower asset allocation than many other funds. In the event that the companies held by the fund underperform the broader sector or the economy, you could see significant losses.
However, the same high-risk approach has provided significantly higher shareholder returns due to the stellar performance of the companies held by the fund. BBH ETF is an interesting but tricky investment to consider.
5. BlackRock iShares Genomics Immunology and Healthcare ETF (IDNA)
Some key facts about BlackRock iShares Genomics Immunology and Healthcare ETF as of November 3, 2021:
- Ticker: NYSEARCA:IDNA
- Inception Date: June 11, 2019
- Assets Under Management: US$363.56 million
- Management Fee: 0.47%
BlackRock iShares Genomics Immunology and Healthcare ETF (IDNA) is a significantly smaller fund with an AUM of $363.56 million.
The fund seeks to track the investment results of developed and emerging market companies in the biotech space, focusing on innovation in genomics, immunology, and bioengineering.
The fund spreads its asset allocation across 59 biotech companies offering you a more niche exposure to a specific space in the biotech industry.
Despite a more focused approach to investing in the biotech space, it is important to note that IDNA ETF prioritizes its asset allocation to more mature biotech companies rather than smaller companies, making it relatively safer than funds focusing on smaller companies.
6. Invesco Dynamic Biotechnology & Genome ETF (PBE)
Some key facts about Invesco Dynamic Biotechnology & Genome ETF as of November 3, 2021:
- Ticker: NYSEARCA:PBE
- Inception Date: June 23, 2005
- Assets Under Management: US$292.5 million
- Management Fee: 0.59%
Invesco Dynamic Biotechnology & Genome ETF (PBE) is another fund with a narrow focus on the biotechnology sector. PBE ETF boasts an AUM of US$292.5 million spread across 32 publicly listed companies in the biotech industry.
The fund seeks to provide you with capital growth by investing at least 90% of its total assets in the securities that comprise the Dynamic Biotech & Genome Intellidex Index.
The fund has a narrow focus, but the fund manager picks and chooses biotech stocks based on qualitative criteria instead of focusing on replicating the holdings of the underlying index.
Actively managed ETFs like PBE ETF come with higher expenses, and many investors believe that low-cost funds regularly outperform actively-managed funds. However, PBE ETF boasts a decent track record so far.
7. ALPS Medical Breakthroughs ETF (SBIO)
Some key facts about ALPS Medical Breakthroughs ETF as of November 3, 2021:
- Ticker: NYSEARCA:SBIO
- Inception Date: December 29, 2014
- Assets Under Management: US$222.82 million
- Management Fee: 0.50%
ALPS Medical Breakthroughs ETF (SBIO) is a smaller ETF in terms of its AUM and the brand name of the asset manager. However, SBIO ETF is an interesting fund to consider if you are interested in the biotech space.
Its smaller US$222.82 million AUM is spread across roughly 130 companies, making it far more diversified within the sector than many other funds on this list.
SBIO ETF emphasizes more on smaller companies in the biotech space, making it interesting for investors looking at younger companies with higher growth prospects.
The deeper exposure to small companies also entails a greater degree of capital risk. It is another tricky investment to consider if you are an investor interested in safer exposure to the biotech space.
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The biotech industry has become increasingly popular amid the pandemic, but the past performance for many of the ETFs I have listed in my guide to the best biotech ETFs in Canada might have shown you that this has been a lucrative space for investors for a longer time.
It has just not been as popular as other sectors of the economy.
Investing in biotech ETFs could be an excellent way for you to diversify into the industry with exposure to internationally diversified companies. Provided that the sector continues to perform as well as it has recently, you could enjoy decent long-term returns on your investment.
It is important to remember that investing in sector-specific ETFs is often riskier than ETFs that track broader market indices if the overall industry goes through a downturn. However, such ETFs can just as easily outperform the broader markets during bull runs.
The tech sector has been performing well in recent years, and if you are interested in investing in ETFs listed in Canada that focus on the tech sector, you should check out my list of the best tech ETFs in Canada.