The biotech industry is 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.
This guide to the best biotech ETFs in Canada will help you see which ones are worth it.
Biotech ETFs let you invest in a group of healthcare companies through a single investment.
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.
Choosing the Right Biotech ETF for You
Given the industry’s inherent risks and potential, here are some factors to consider:
- Diversification: Look for ETFs that provide a broad exposure to the biotech sector. Diversified ETFs help mitigate the risk associated with individual companies’ failures.
- Management Fee: As with all ETFs, keep an eye on the management fee. While a higher fee might be justified by better performance, it’s always a good idea to compare fees across similar funds.
- Focus: Some biotech ETFs might focus on specific niches within the industry, such as genomics or immunology. Understand the ETF’s focus and ensure it aligns with your investment goals and risk tolerance.
- Performance: While past performance is not indicative of future results, it’s still a factor to consider. Look at the historical returns of the ETF and how it compares to its benchmark index.
- Asset Under Management (AUM): ETFs with a larger AUM might offer more liquidity, which can be beneficial if you need to sell your position.
Being the country where ETFs originated, it is surprising that there are no biotech ETFs listed on Canadian stock exchanges.
Fortunately, if you are a Canadian investor interested in gaining diversified exposure to the biotech industry, you can still invest in biotech ETFs listed in international stock markets.
- BlackRock iShares Biotechnology ETF (IBB)
- ARK Genomic Revolution ETF (ARKG)
- SPDR S&P Biotech ETF (XBI)
- VanEck Vectors Biotech ETF (BBH)
- BlackRock iShares Genomics Immunology and Healthcare ETF (IDNA)
- Invesco Dynamic Biotechnology & Genome ETF (PBE)
- ALPS Medical Breakthroughs ETF (SBIO)
Some key facts about BlackRock iShares Biotechnology ETF as of October 13, 2023:
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 October 13, 2023:
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 October 13, 2023:
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 October 13, 2023:
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.
Some key facts about BlackRock iShares Genomics Immunology and Healthcare ETF as of October 13, 2023:
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 October 13, 2023:
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 October 13, 2023:
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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Investing in biotech ETFs could be an excellent way for you to diversify into the industry with exposure to internationally diversified companies.
If you’re looking for other sectors beyond biotech, check out some of the best commodity ETFs in Canada here.