It has been a stellar run for the legacy biotechnology exchange traded funds. The legacy biotechnology ETFs, including the largest, the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), are the five funds that prior to late last year, had no non-leveraged competition.
Other members of the “old biotech ETF” quintet include the SPDR S&P Biotech ETF (NYSEArca: XBI) and the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT). Over the past five years, IBB and XBI, the third-largest biotech ETF by assets have returned an average of 350%. FBT is higher by almost 300%.
From 2012 through 2014, an average of three biotech ETFs were found among each year’s 10 best sector ETFs. This year, that number has swelled to six, but not all of this year’s best biotech ETFs hail from the legacy group. [Triple-Leveraged Biotech ETFs Debut]
Up 27.1%, the BioShares Biotechnology Products Fund (NasdaqGM: BBP) is becoming a credible alternative to old school biotech ETFs. BBP’s biotech purity helps. BBP tracks the BioShares Biotechnology Products Index, which is also sponsored by LifeSci Index Partners. That index follows U.S.-listed biotech companies with a primary product offering or product candidate that has landed FDA approval. [New Breed Biotech ETFs]
“Biotechnology Product companies, such as those found in BBP, have developed at least one drug that has been approved by the Food and Drug Administration (FDA) and has gone into commercial production. These companies devote their energies toward sales and marketing, attempting to raise awareness of their new product launches,” according to BioShares.
BBP, which debuted in December, is currently home to about 35 stocks and the ETF’s top 10 holdings combine for roughly 40% of its weight.
BBP’s “focus lends itself to investing in more well-established companies that may be less dependent upon raising capital to fund future growth. This specific biotechnology investing approach may provide a unique niche in which to maintain exposure in the sector while mitigating risk exposure to more volatile clinical-stage companies,” writes Noah Kiedrowski in a Seeking Alpha post.
The BioShares Biotechnology Products Index, the benchmark for BBP, is tilted more toward large-caps, but close to a third of BBP’s selection universe has cancer therapy exposure, giving the ETF ample leverage to one of the hottest biotech themes.
“BBP offers exposure to the entire sector and mitigates that risk by default by honing in on companies with at least one FDA approved treatment. This may serve as a viable alternative to those unwilling to take on a single company investment strategy while still maintaining portfolio exposure to the sector. Considering the long track record of innovative treatments and market performance, BBP may serve as a great satellite holding for any long portfolio with a long-term time horizon to buffer the intrinsic volatility in the biotechnology sector due to the focus of this ETF,” according to Kiedrowski.
BioShares Biotechnology Products ETF