Biotech ETFs were the strongest market sector by far in early trading Thursday as portfolio holdings Human Genome Sciences (NasdaqGS: HGSI) and Gilead Sciences (NasdaqGS: GILD) soared on a takeover bid and encouraging drug results.

Human Genome shares rallied more than 100% following an unsolicited buyout bid of about $2.6 billion from GlaxoSmithKline (NYSE: GSK), although the proposal was rejected by Human Genome.

SPDR S&P Biotech ETF (NYSEArca: XBI) jumped 5% at last check Thursday. Human Genome shares represented 2.6% of the fund as of Wednesday’s close. The ETF tracks an equal-weighted index of biotech stocks.

The cash offer of $13 a share represents an 81% premium to Wednesday’s closing price for Human Genome, which said it is considering strategic alternatives. The company said the GlaxoSmithKline offer “does not reflect the value inherent” in Human Genome.

Biotech ETFs are off to a big start in 2012 after breaking out in January. [Biotech ETFs Break Out]

Other sector funds in the category include iShares Nasdaq Biotechnology Index Fund (NYSEArca: IBB), First Trust Amex Biotechnology (NYSEArca: FBT) and Market Vectors Biotech ETF (NYSEArca: BBH).

The iShares Nasdaq Biotechnology is up 14% year to date, compared with a roughly 11% gain for the S&P 500, according to investment researcher Morningstar.

This ssector ETF follows a benchmark that weights stocks by market cap. As of April 18, Human Genome accounted for only 0.3% of the portfolio, while Gilead represented 5.4%.

Gilead shares climbed 14% on Thursday after the company announced solid treatment results for its experimental Hepatitis C drug in a study.

Some investors and traders use biotech ETFs to get exposure to the entire sector and reduce single-stock risk.

Earlier this year, Josh Brown at The Reformed Broker blog predicted the biotech sector was ripe for takeovers.

“The upside here is that large pharmas will continue to acquire these companies so long as their own R&D departments are starving. They have tons of cash and a burning desire to add pipeline — which makes almost every publicly-traded biotech a target for someone,” Brown wrote.

iShares Nasdaq Biotechnology

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