In the view of S&P Capital IQ, biotechnology carries the potential for above-average performance, but with a high inherent risk profile. The following ETFs can help mitigate risk by investing in several companies, rather than banking capital on just one.
SPDR S&P Biotech ETF (NYSEArca: XBI) has had a total return of 9.56% over the past 12 months ended April 30.Other ETFs to consider are the PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP) which has a 12-month return of 18%. The iShares Nasdaq Biotechnology Index Fund (NYSEArca: IBB) has returned 14.8% over the past 12 months, according to S&P Capital IQ. [Choosing the Right Biotech ETF Exposure]
Furthermore, the positive environment for merger and acquisition activity in the biotech sector is only going to help the performance. Larger, billion dollar companies will become more active as the “patent cliff” has caused large players to lose patents due to expiration. [5 Biotech ETFS to Play Innovation]
An emerging FDA infrastructure will likely oversee “biosimilar” drug approvals, which gives a 12-month branding period to drugmakers, however, these may not hit the market for several years. Partnering activity between biotech and generics could become more common. [Biotech ETFs Break Out]
SPDR S&P Biotech ETF
Tisha Guerrero contributed to this article.