Biotechs ETFs created some heat yesterday as The SPDR S&P Biotech ETF and the iShares Nasdaq Biotechnology ETF, two popular exchange-traded funds tracking the biotechnology space, jumped on Monday after Pfizer, the largest drugmaker in the U.S., said it would buy Array BioPharma for over $10 billion.
The iShares Nasdaq Biotechnology ETF (IBB) is on pace for its fourth positive day of gains in the last 5 trading sessions. The iShares Nasdaq Biotech ETF has outperformed the SPDR S&P 500 ETF (SPY), gaining 4.63% while the SPY has made 1.35% of late.
The iShares Nasdaq Biotech ETF investment seeks to track the investment results of the NASDAQ Biotechnology Index, which contains securities of companies listed on NASDAQ that are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals and that also meet other eligibility criteria determined by Nasdaq, Inc. The fund generally invests at least 90% of its assets in securities of the index and in depositary receipts representing securities of the index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents. It is non-diversified.
The funds top holding include a number of well-known players with the following allocations:
| Celgene Corp | CELG | 8.98% |
| Gilead Sciences Inc | GILD | 8.60% |
| Amgen Inc | AMGN | 7.87% |
| Biogen Inc | BIIB | 5.88% |
| Vertex Pharmaceuticals Inc | VRTX | 5.79% |
| Illumina Inc | ILMN | 4.41% |
| Alexion Pharmaceuticals Inc | ALXN | 3.68% |
| Regeneron Pharmaceuticals Inc | REGN | 3.14% |
| Incyte Corp | INCY | 2.44% |
| Biomarin Pharmaceutical Inc | BMRN | 2.12% |
“If you’re looking for large-cap exposure or mega-cap exposure in this space, IBB is clearly the one that stands out,” Chris Hempstead, Deutsche Bank’s head of ETF sales, told CNBC’s “ETF Edge” on Monday.
The IBB ETF allocates its holdings based on their market caps, which translates to more valuable names representing more sizable portions of the portfolio. That structure can provide protection in times of volatility, as larger companies can survive better than their smaller, more focused counterparts.
Many investors who are excited about advancements in biotech go hunting for ETFs the Deutsche analyst explained.
“They hear people talk about cancer drugs, they hear people talk about oncology advancements, and they say, ‘I want to invest in that,’” Hempstead said. “They look under the hood at XBI, IBB and names like SBIO and they’ll find what they’re looking for.”
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