Investors can try to rummage through single pharmaceutical and biotech companies that offer generics, but the majority are small with high degrees of volatility, low profit margins, and stiff competition from established companies. Given the risks of individual picks, a broadly diversified ETF would help lower risk of investing in this sub-sector. [Take A Defensive Approach with a Health Care ETF]
While there are no global generic drug ETFs currently on the market, investors can still track biotech stocks with broad ETFs like the iShares Nasdaq Biotech (NasdaqGM: IBB), Market Vectors Biotech ETF (NYSEArca: BBH), and SPDR S&P Biotech (NYSEArca: XBI), which have experienced returns of over 50% in the past two years. These funds will offer exposure to big biotech and big pharmas that continue to engineer new specialized drug products. [ETF Chart of the Day: Healthcare Sector]
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.