The biotechnology sector has been hopping around like Tigger lately; mergers and acquisitions dot the space, some stocks are rocketing higher while others are taking a few lumps. This is why biotech exchange traded funds (ETFs) might be a better way to access the sector than picking stocks.
The biotech industry at large may appeal to some of the more conservative investors out there, says Don Dion for The Street. Many of the larger ETFs are taking unique, well-balanced approaches to the industry, but which you go for depends on what your goals are. [Why ETFs Are a Good Way to Play Biotech.]
The biotech industry is a unique one; many companies have that blockbuster drug in development stage. FDA approval can make or break a company, and you never truly know who’s going to be next. That’s part of the appeal of the sector, but it’s also part of the risk. Stock-picking in biotech can be a stressful venture, while ETFs spread the risk out some.
Many of the larger, broad-based ETFs are tracking larger, well-rounded firms that have established themselves over time. One example of such a fund is the iShares Nasdaq Biotechnology (NYSEArca: IBB), which has the largest players in the space.
But don’t worry if you’re the kind of investor who enjoys a little risk – biotech ETFs aren’t totally lacking. If volatility and higher risk is more your speed, Dion says, check out SPDR S&P Biotechnology (NYSEArca: XBI) and First Trust NYSE Arca Biotechnology (NYSEArca: FBT), which take an equal-weight approach toward the biotech industry. That means the big, established player has the same weighting as the unproven ones. [Where Biotech’s Future Lies.]