Guide on Biotech Investments: A Step-By-Step Approach
Biotechnology is playing an increasingly significant role in various industries, particularly in the medical and agriculture sectors. This article will focus on investing in biotechnology through Exchange-Traded Funds (ETFs), providing an overview of two leading biotech ETFs and the future prospects of the sector.
Biotech ETFs: A Diversified Way to Invest in Biotechnology
The growing need for new drugs to treat chronic diseases such as strokes, cancer, asthma, and hypertension is driving the growth of the biotechnology market. To invest specifically in biotechnology ETFs, it is essential to first determine your investment goals, risk tolerance, and time horizon. Given biotech ETFs are sector or thematic funds, they tend to be more volatile than broad market ETFs and are better suited as satellite holdings in a diversified portfolio.
Researching leading biotech ETFs, considering expense ratios, liquidity, index tracked, and holdings, and purchasing shares through a brokerage platform like you would with regular stocks is the way to go.
Top Biotech ETFs: iShares Biotechnology ETF (IBB) and SPDR S&P Biotechnology ETF (XBI)
Currently, some of the top biotechnology ETFs available include the iShares Biotechnology ETF (IBB) and SPDR S&P Biotechnology ETF (XBI).
iShares Biotechnology ETF (IBB)
One of the largest and most established biotech ETFs, IBB, has over $5.47 billion in assets. It tracks the Nasdaq Biotechnology Index and includes large biotech and pharmaceutical companies like Vertex Pharmaceuticals, Amgen, and Gilead Sciences. The expense ratio is approximately 0.45%.
SPDR S&P Biotechnology ETF (XBI)
Tracks the S&P Biotechnology Select Industry Index, XBI favors smaller and midsize biotech companies, adding higher risk and return potential. It is more diversified with 125 holdings and currently holds around $4.8 billion in assets.
Both ETFs offer diversified exposure within the biotech sector but differ in their holdings composition and risk profile: IBB leans towards larger cap biotech/pharma companies, while XBI includes more small and mid-cap biotech firms. Before investing, assess their expense fees, diversification, and how they fit your portfolio goals.
The Future of Biotechnology
The nanotechnology drug market, a subsector of the biotech space, is expected to see a compound annual growth rate of 8.13 percent between 2023 and 2032, reaching a total value of US$183.11 billion. Biotech companies and pharmaceutical companies have a philosophical difference, with biotech being more risk-taking.
Investing in biotechnology can be done through stocks or ETFs. When investing in biotech stocks, the level of risk must be considered, with larger, established companies being less likely to succumb to bad market conditions than more speculative, newly listed companies.
The global biotechnology market is projected to have a compound annual growth rate of 13.96 percent between 2024 and 2030, reaching US$3.88 trillion by the end of the forecast period, according to Grand View Research. The increasing prevalence of infections and chronic diseases, and increasing government and regulatory support, are major drivers of revenue growth for the biotechnology sector in the coming years.
In summary, investing in biotechnology ETFs like IBB and XBI can provide a diversified way to gain exposure to potential biotech growth, with clarity on what you own and associated risks. As the sector continues to grow and innovate, it presents exciting opportunities for investors seeking to balance risk and potential growth.
Investing in biotechnology ETFs not only offers a diversified way to gain exposure to the growing biotech market, but it also provides a balance between risk and potential growth. For instance, the iShares Biotechnology ETF (IBB) and SPDR S&P Biotechnology ETF (XBI) are two leading ETFs that focus on the life science sector. On the other hand, finance is also crucial when it comes to investing in biotechnology, as understanding expense ratios, liquidity, index tracked, and holdings is essential for making informed decisions about which ETFs to invest in. Additionally, technology plays a significant role in this sector, particularly in advancing medical treatments and agriculture solutions through innovative biotech solutions.
