A defensive investment: Biotechnology ETFs

Filed under: Mutual funds, Abbott Laboratories (ABT), Genentech Inc (DNA), ETF Investing

One of the buzzwords that is currently in vogue in the investment community is biotechnology. This is a broad-based field that covers technological applications in any biological system, meaning humans, animals, agriculture, and medicines. This is a booming science and the investment field offers many opportunities for wealth accumulation.

If you don't want to spend countless hours trying to understand not just financials, but scientific and technical jargon that biotech companies harbor, exchange-traded funds (ETFs) may be the better choice for investing in the biotechnology industry.

An ETF is similar to buying a share of a company, but instead of getting one particular company you're investing in a bundle of companies within a particular field or specialty. It's a great way to invest in something you believe in while still hedging your bets and having a bit of diversity.

There are five popular biotech ETFs, each differing by the number of stocks held and the indices mirrored. These five include: SPDR Biotech ETF (NYSE: XBI), PowerShares Dynamic Biotech & Genome (NYSE: PBE), iShares NASDAQ Biotechnology (NYSE: IBB), First Trust AMEX Biotechnology (NYSE: FBT), and the Biotech HOLDRs (NYSE: BBH).

Each of these biotech ETFs index the biotech world a little differently. iShares NASDAQ Biotechnology is the most diverse and holds 176 total stocks, by far the most number of stocks of any biotech ETF. It follows the NASDAQ Biotechnology Index.

Whichever one you choose, you'll only be paying a fraction of the management fees to a mutual fund manager by owning one of these ETFs. Its been proven over and over again that mutual fund managers underperform the market they're trying to beat over time.

As an example, Biotech HOLDRs indexes the biotechnology industry through only 18 companies that are noted leaders in this field. Some of their holdings include Genentech Inc. (NYSE: DNA) a noted leader in the development and production of pharmaceutical products in the United States, Gilead Sciences Inc. (NASDAQ: GILD) a biopharmaceutical company with a focus on life-threatening infectious diseases, and Affymetrix Inc. (NASDAQ: AFFX) which handles and services consumables and systems for genetic analysis.

Here are the top 10 holdings for Biotech HOLDRs:

• Genentech Inc. (41.39%)


• Affymetrix Inc. (22.56%)


• Gilead Sciences Inc. (17.33%)


• Biogen Idec Inc. (NASDAQ: BIIB) (7.08%)


• Genzyme Corp. (NASDAQ: GENZ) (5.77%)


• Applied Biosystems Inc. (NYSE: ABI) (3.07%)


• Shire PLC (NASDAQ: SHPGY) (1.54%)


• Sepracor Inc. (NASDAQ: SEPR) (0.47%)


• Celera Corp. (NASDAQ: CRA) (0.26%)


• Alkermes Inc. (NASDAQ: ALKS) (0.23%)

Mitch Tuchman founded MarketRiders, an investment website.

 

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