Is iShares Biotechnology ETF (IBB) a Strong ETF Right Now?

A smart beta exchange traded fund, the iShares Biotechnology ETF (IBB) debuted on 02/05/2001, and offers broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $6.83 billion, this makes it one of the largest ETFs in the Health Care ETFs. IBB is managed by Blackrock. Before fees and expenses, IBB seeks to match the performance of the Nasdaq Biotechnology Index.

The ICE Biotechnology Index contains securities of NASDAQ listed companies that are classified as either biotechnology or pharmaceuticals.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.45% for IBB, making it on par with most peer products in the space.

IBB's 12-month trailing dividend yield is 0.29%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

IBB's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.

When you look at individual holdings, Amgen Inc (AMGN) accounts for about 11.27% of the fund's total assets, followed by Gilead Sciences Inc (GILD) and Regeneron Pharmaceuticals Inc (REGN).

IBB's top 10 holdings account for about 51.38% of its total assets under management.

Performance and Risk

So far this year, IBB has lost about -29.52%, and is down about -28.14% in the last one year (as of 05/10/2022). During this past 52-week period, the fund has traded between $107.28 and $176.21.

The fund has a beta of 0.92 and standard deviation of 26.66% for the trailing three-year period, which makes IBB a high risk choice in this particular space. With about 379 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Biotechnology ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

First Trust NYSE Arca Biotechnology ETF (FBT) tracks NYSE Arca Biotechnology Index and the SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index. First Trust NYSE Arca Biotechnology ETF has $1.21 billion in assets, SPDR S&P Biotech ETF has $5.03 billion. FBT has an expense ratio of 0.55% and XBI charges 0.35%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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iShares Biotechnology ETF (IBB): ETF Research Reports
 
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
 
Amgen Inc. (AMGN) : Free Stock Analysis Report
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
SPDR S&P Biotech ETF (XBI): ETF Research Reports
 
First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
 
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