Biotech companies use or modify biological processes in order to create new pharmaceuticals or therapies. The biotech sector is particularly closely followed right now, as biotech companies around the world work to develop potential vaccines for COVID-19. Some of the most prominent biotech companies include Vertex Pharmaceuticals Inc. (VRTX) and Regeneron Pharmaceuticals Inc. (REGN).
- The biotech sector outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are ARKG, BTEC, and IDNA.
- The top holdings of these ETFs are Invitae Corp., Moderna Inc., and Mirati Therapeutics Inc., respectively.
Investing in the biotech sector can be risky. The scientific and regulatory issues involved with gaining approval from the U.S. Food and Drug Administration (FDA) can be substantial, making it risky and difficult to predict what biotech stocks will outperform. One of the easiest ways to invest in the sector is through exchange-traded funds (ETFs). These funds have holdings in a large array of biotech companies, offering investors a well-diversified portfolio in one easy-to-execute trade.
The biotech ETF universe is comprised of about 10 distinct ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The biotech sector, as measured by the Nasdaq Biotechnology Index, has outperformed the broader market with a total return of 19.7% over the past 12 months compared to the S&P 500's total return of 10.0%. The best-performing biotech ETF, based on performance over the past year, is the ARK Genomic Revolution ETF (ARKG). We examine the top 3 best biotech ETFs below. Performance numbers above are as of November 2; all other numbers in this story are as of November 3, 2020.
- 1-Year Trailing Total Return: 134.3%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 3.22%
- 3-Month Average Daily Volume: 946,024
- Assets Under Management: $2.8 billion
- Inception Date: October 31, 2014
- Issuer: ARK Investment Management
ARKG is an actively-managed ETF that seeks to invest in companies with significant potential to profit from technological and scientific advancements in gene-editing, genetic therapy, molecular diagnostics, and stem cell advances. The multi-cap fund invests in biotech stocks with various market capitalizations but is tilted towards smaller firms. Its holdings are focused on U.S. biotech companies with strong growth potential. Its top three holdings include Invitae Corp. (NVTA), a medical genetics company; CRISPR Therapeutics AG (CRSP), a Switzerland-based gene-editing medical company; and Pacific Biosciences of California Inc. (PACB), a gene sequencing and biological observation company.
- 1-Year Trailing Total Return: 50.5%
- Expense Ratio: 0.42%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 14,580
- Assets Under Management: $108.5 million
- Inception Date: August 19, 2016
- Issuer: Principal Financial Group
BTEC tracks the NASDAQ U.S. Health Care Innovators Index, which provides exposure to non-mega-cap U.S. healthcare companies listed on the Nasdaq U.S. Benchmark Index. The ETF invests in companies with various market capitalizations but seeks to avoid large-cap and less liquid names. The fund follows a growth strategy, focused on companies that are researching and developing innovative medicines, therapies, equipment, and facilities. Its top three holdings include Moderna Inc. (MRNA), a biotech company focused on developing vaccine technology based on messenger RNA; Seattle Genetics Inc. (SGEN), a biotech company that develops antibody-based therapies for the treatment of cancer; and Exact Sciences Corp. (EXAS), a diagnostics company focused on early cancer detection.
- 1-Year Trailing Total Return: 49.2%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 0.85%
- 3-Month Average Daily Volume: 55,894
- Assets Under Management: $158.8 million
- Inception Date: June 11, 2019
- Issuer: iShares
IDNA tracks the NYSE FactSet Global Genomics and Immuno Biopharma Index, which is composed of companies with the potential to benefit from the long-term growth and innovation in genomics, immunology, and bioengineering. The multi-cap ETF invests in biotech companies with a range of market capitalizations. The fund follows a blended strategy, holding stocks with both growth and value characteristics. Its top three holdings include Mirati Therapeutics Inc. (MRTX), a clinical-stage oncology company; Invitae; and Seattle Genetics.
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