ETF Talk: Create the Future with This ETF

“The potential for synthetic biology and biotechnology is vast; we all have an opportunity to create the future together.”

— Ryan Bethencourt, American entrepreneur and scientist

For investors, this is not just an abstract vision; it’s a call to participate in groundbreaking innovation — and grow wealth along the way.

Biotechnology is a unique part of the health care sector and certainly has its ups and downs. As such, it could be considered a riskier investment, and it has recently been lagging. However, an investment in biotechnology could make a strong addition to the portfolio of patient investors, since it has potential for strong growth and high returns long term. It also holds the promise of building a better future through breakthroughs in health care, agriculture and environmental protection. While these breakthroughs may take time, they certainly hold high potential for investors willing to stick it out through the low points.

This week’s focus is on the SPDR S&P Biotech ETF (XBI). This fund uses a sampling strategy to track the performance of the S&P Biotechnology Select Industry Index. It invests at least 80%, but substantially all of its total assets in the securities comprising the index. The index represents the biotechnology segment of the S&P Total Market Index and primarily includes biotechnology stocks from the U.S. market.

XBI emphasizes small- and micro-cap biotechnology companies, which can increase price volatility, but the fund’s broad exposure across the sector with its approximate 123 holdings helps dilute the unpredictability of individual companies while still capturing immense growth potential. It also equally weights its portfolio, further reducing single-name risk.

XBI has net assets of $4.78 billion and an expense ratio of 0.35%. Its top 10 holdings make up only 26.39% of its total assets and consist of Alnylam Pharmaceuticals, Inc. (ALNY), 3.21%; Halozyme Therapeutics, Inc. (HALO), 2.72%; Insmed Incorporated (INSM), 2.67%; Incyte Corporation (INCY), 2.66%; Moderna, Inc. (MRNA), 2.60%; Regeneron Pharmaceuticals, Inc. (REGN), 2.57%; Neurocrine Biosciences, Inc. (NBIX), 2.52%; Gilead Sciences, Inc. (GILD), 2.51%; BioMarin Pharmaceutical Inc. (BMRN), 2.47% and Amgen Inc. (AMGN), 2.47%.

Chart courtesy of www.stockcharts.com

As you can tell from the chart above, XBI has had a volatile year. It has been down 0.11% in the last month, up 9.41% in the last three months and slid 3.47% year to date. This investment is not for the faint of heart and will require patience and time to recover; however, it has started rebounding since the drop in April. For investors that are in it for the long run, XBI deserves a place on your watch list, especially if it meets your individual risk-tolerance profile.

In any case, it is important to do your own research to assess the data and risks for what works best for your personal investment goals. Investors should always do their due diligence before adding any stock or fund to their portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.