Biotech ETFs are movin’ on up on news that Pfizer is buying Array BioPharma for over $10 billion. SPDR S&P Biotech (XBI), iShares Nasdaq Biotechnology ETF (IBB), and ALPS Medical Breakthroughs ETF (SBIO) rose with the announcement of the acquisition.
ETFs like XBI and IBB have fundamental differences. Depending on an investor’s strategy they can look to XBI, an equal weighted index or IBB, a market cap weighted index.
XBI tracks a modified equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks, according to State Street. IBB, on the other hand, tracks the investment results of an index composed of biotechnology and pharmaceutical equities listed on The NASDAQ, according to iShares.
“If you’re looking for large cap exposure or mega cap exposure in this space, IBB is clearly the one that stands out,” said Chris Hempstead of Deutsche Bank on CNBC’s ‘ETF Edge‘. “It’s market cap weighted whereas XBI is equal weighted so you’re going to get closer to that mid cap sphere of the companies that are in there. It gives you a little more of the upside of a growth company.”
IBB’s primary holdings include Celegene (9%), Gilead Sciences Inc (9%), Amgen Inc (8%), and Biogen Inc (6%). XBI’s top holdings include Mirati Therapeutics Inc, Array BioPharma Inc, Exact Sciences Corporation, and SAGE Therapeutics Inc—all at around 2%.
SBIO: Thinking Different
Biotech ETF ALPS Medical Breakthroughs ETF (SBIO) is taking a different investment approach. The Underlying Index, called the Poliwogg Medical Breakthroughs Index, “is comprised of small- and mid-cap stocks of biotechnology companies that have one or more drugs in either Phase II or Phase III U.S. Food and Drug Administration (FDA) clinical trials,” according to alpsfunds.com.
SBIO’s top holding include Array BioPharma Inc (6%), Galapagos NV ADR (6%), Ascendis Pharma A/S ADR (5%), Mirati Therapeutics Inc (4%), and Global Blood Therapeutics Inc (4%).
“If people open up the hood of the ETF and they look at what’s in it, they can gear their investment toward what they really want,” said Hempstead. “They hear people talk about cancer drugs, they hear people talk about oncology advancement, and they say I want to invest in that. They look under the hood of XBI and IBB and names like SBIO and they’ll find what they’re looking for.”
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