Biotech comes with a great many positive externalities for society, and can be a big positive for portfolios right now. Just because tech and innovation took some big hits in last year’s selloff doesn’t mean that biotech can’t perform right now, or even in a possible looming downturn — and looking at biotech ETFs’ performance over the last month, there are some appealing options to consider.
Biotech may be part of that landscape of tech sectors that saw some dark times last year, but it has its advantages — for one thing, its exposure to a traditionally defensive sector like health care offers some notable resilience, while AI’s grand entrance as a driving megatrend can support further development and R&D. Yes, there are challenges as rates remain high, but the biggest biotech names may be able to use their cash reserves to pull in talent from rivals and break away from the pack.
See more: “Biotech M&A Could Finally Be Ready to Rebound“
That’s why biotech ETFs’ performance is worth watching in ETFs like the ARK Genomic Revolution ETF (ARKG), the SPDR S&P Biotech ETF (XBI), and the ALPS Medical Breakthroughs ETF (SBIO). Each has outperformed its respective averages according to VettaFi, offering varied approaches to the space.
SBIO has outperformed the two over the last month per the below graph from YCharts, tracking the S-Network Medical Breakthroughs Index for a 50 basis point (bps) fee. SBIO tracks a market-cap weighted index of U.S.-listed biotechs with one or more drugs in either Phase II or Phase III FDA clinical trials, while its largest stock is capped at a 4.5% weight.
ARKG is the only actively managed strategy of the three, charging 75 bps for its investment in firms that may profit from tech and scientific advancements in gene editing, molecular diagnostics, and more. ARKG has nearly $2 billion in AUM compared to just $105 million for SBIO, while ARKG also has a larger percentage of mid-cap stocks than SBIO, with the plurality of the latter’s market cap in small cap holdings.
Finally, XBI tracks the S&P Biotechnology Select Industry Index for a 35 bps fee, returning 631bps over the last month. XBI focuses exclusively on U.S. stocks and limits its portfolio through its equal-weighted methodology, which has its advantages in a biotech space that can see quick growth for firms of varying sizes.
Alongside the biotech ETFs’ performance, the trio also have longevity, with each operating for more than eight years as of this April. For those looking at the space overall, there are some intriguing ETFs available as part of the broader case for biotech investing in 2023.
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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for SBIO, for which it receives an index licensing fee. However, SBIO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SBIO.