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

Smart Beta ETF report for IBB

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This story originally appeared on Zacks

Making its debut on 02/05/2001, smart beta exchange traded fund iShares Biotechnology ETF (IBB) provides investors broad exposure to the Health Care ETFs category of the market.

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What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by Blackrock. IBB has been able to amass assets over $9.65 billion, making it one of the largest ETFs in the Health Care ETFs. IBB seeks to match the performance of the Nasdaq Biotechnology Index before fees and expenses.

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

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining 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 0.22%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For IBB, it has heaviest allocation in the Healthcare sector --about 99.90% of the portfolio.

Taking into account individual holdings, Amgen Inc (AMGN) accounts for about 7.95% of the fund's total assets, followed by Moderna Inc (MRNA) and Gilead Sciences Inc (GILD).

IBB's top 10 holdings account for about 47.89% of its total assets under management.

Performance and Risk

Year-to-date, the iShares Biotechnology ETF has lost about -2.68% so far, and is down about -1.25% over the last 12 months (as of 01/05/2022). IBB has traded between $145.27 and $176.21 in this past 52-week period.

The fund has a beta of 0.86 and standard deviation of 25.51% for the trailing three-year period, which makes IBB a high risk choice in this particular space. With about 270 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 $1.68 billion in assets, SPDR S&P Biotech ETF has $7.08 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

 

Amgen Inc. (AMGN): Free Stock Analysis Report

 

Gilead Sciences, Inc. (GILD): Free Stock Analysis Report

 

Moderna, Inc. (MRNA): 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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Zacks Investment Research