Companies in the biotechnology sector work toward improving the qualify of life through research and development in the health care, agriculture and industrial fields. The biotech sector has been a place where investors with high-risk tolerances seek out high-growth opportunities. Although biotech exchange-traded funds (ETFs) have high potentials for growth, they carry high levels of risk. Many biotech companies invest hundreds of millions of dollars in research and development of new products and services, only to be rejected by the Food and Drug Administration.

Biotech ETFs invest specifically in biotechnology companies that develop innovative products and services aimed at combating problems in multiple fields. Biotechnology industry ETFs provide investors with exposure to the biotech sector without maintaining a portfolio of biotech stocks.

SPDR S&P Biotech ETF

The SPDR S&P Biotech ETF (NYSEARCA: XBI) was issued by State Street Global Advisors on Jan. 31, 2006. The fund is legally structured as an open-ended investment company; the investment manager is State Street Global Advisors Fund Management Incorporated, and the distributor is State Street Global Markets, LLC.

The SPDR S&P Biotech ETF seeks to provide investment results, before fees and expenses, corresponding to the total return performance of the S&P Biotechnology Select Industry Index. The fund seeks to provide these investment results by holding component companies listed in the index with similar weights. As of Aug. 4, 2015, XBI has total net assets of $2.9742 billion and an expense ratio of 0.35%, while the average expense ratio of the XBI category of specialty-health is 0.49%.

The fund is suitable for long-term investors seeking exposure to the high-risk, but potentially promising high returns, of the biotech industry. The fund is best-suited for long-term investors who seek to mimic the performance of the S&P Biotechnology Select Industry Index.

First Trust NYSEARCA Biotechnology ETF

The First Trust NYSE Biotechnology Arca ETF (NYSEARCA: FBT) was issued on June 19, 2006 and is legally structured as an open-ended investment company. The fund's investment adviser is First Trust Advisors L.P., and its investor servicing agent is the Bank of New York Mellon.

FBT seeks to replicate, before fees and expenses, the price movements and yield of the NYSEARCA Biotechnology Index by holding component companies listed in the index. The fund has total net assets of $3.859 billion and a high expense ratio of 0.58% when compared to the average expense ratio of its category of specialty - health. The fund has 30 holdings, which are close-to-equally weighted, that include large biotech and pharmaceutical companies specializing in the use of biological processes.

Due to the fund's portfolio of larger and more stable companies than the broad sector, it is suitable for long-term investors who have a moderately high level of risk tolerance seeking to gain exposure to the biotech sector and mirror the performance of the NYSEARCA Biotechnology Index.

iShares Nasdaq Biotechnology ETF

The iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) was issued on Feb. 5, 2001 by BlackRock Incorporated. The fund is managed by BlackRock iShares and is distributed by BlackRock Investments, LLC.

IBB seeks to provide investors with exposure to U.S. biotech and pharmaceutical companies by tracking the investment results of the Nasdaq Biotechnology Index. The fund has total net assets of $10.016 billion and an expense ratio of 0.48%, which is in line with the category's average expense ratio of 0.49%. IBB has 147 holdings and is one of the most diverse and broad biotech ETFs. Since the fund tracks a Nasdaq-based index, IBB only holds companies traded on the Nasdaq and misses out on biotech companies traded on the NYSE, which can have high growth potentials.

The fund is best-suited for long-term investors seeking to gain exposure to biotech and pharmaceutical companies listed on the Nasdaq. Like most biotech ETFs, IBB carries an above-average level of risk and is not suitable for risk-adverse investors. However, the fund has proven, historically, that it provides exceptionally high returns on a risk-adjusted basis based on its trailing three-year Sharpe ratio of 2.02.

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