Sometimes, not all sector exchange traded funds (ETFs) are alike. It pays to do your homework, because although there are often several funds covering an area, performance can vary greatly.

Alan Brochstein of Seeking Alpha says, for example, that when it comes to biotechnology funds, it might appear that you can’t go wrong no matter what you pick, caution should still be exercised when it comes to ETFs. Not doing your research could cost you.

The Biotech HOLDR (BBH) is heavily concentrated in three companies and has 15 stocks. The SPDR S&P Biotech (XBI) is more diversified, with 31 holdings, and its top holdings represent less than 5% of the fund’s value. Finally, there is the iShares Nasdaq Biotech Index Fund (IBB), which holds 170 stocks.

Aside from the wide-ranging number of holdings in these funds, the 2007 returns for each fund show big differences, too: IBB returned close to the market averages, BBH lost almost 12% and XBI gained 29%.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.