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Max Manturov

Max Manturov

Head of investment research regulated by CySec 20.05.2021

Portfolio for the Sustainable Investor: The Top Three Biotech ETFs

Biotechnology is one of the economy's relatively new and rapidly developing sectors. The size of this market is $752 billion, but according to Grand View Research predictions, it will increase at a rapid pace: the compound annual growth rate, CAGR, will be 15.8 percent until 2028.

Biotechnology investments are unique in that they are fraught with risk. The reason behind this is that before releasing a product to the market, corporations must invest large sums of money in development and successfully complete all rounds of testing, which takes a significant amount of time and resources. As a result, only a small percentage of startups succeed, and many biotech companies are considerably undervalued. Those who conquer all of the hurdles, on the other hand, see exponential rise in value - over 100 percent, and often over 1000 percent. Biotechnology remains attractive among investors because of this feature.

If you wish to invest in a high-risk sector but lack the necessary expertise, purchasing funds is the ideal option. Our analysts have selected the largest and most popular biotech ETFs for you.

1. iShares Nasdaq Biotechnology ETF

Current price: $ 148.86.

Ticker: IBB.US

The fund offers access to the biotechnology subsector of the healthcare industry. Due to technical advancements and greater investment in medical projects, the value of certain stocks may rise. With 279 different ETFs, the iShares Nasdaq Biotechnology ETF has the most assets under management among peers, giving a high level of diversification within the industry. IBB is mainly focused on US stocks because it mirrors the dynamics of the NASDAQ Biotechnology Index. The presence of a limited number of multinational enterprises, on the other hand, adds a layer of global diversification. ETFs, when seen as a whole, have the best risk-to-reward ratio.

Key facts:

  • Assets under management, AUM - $ 9.66 billion
  • Dividend yield - 0.26%.
  • Expense Ratio - 0.46%.
  • The number of names of shares in ETF - 279.

Companies with the largest ETF allocations:

  • Amgen, Inc. - 9.07%;      
  • Gilead Sciences, Inc. - 6.66%;
  • Moderna, Inc. - 5.72%;      
  • Illumina, Inc. - 4.95%;
  • Vertex Pharmaceuticals, Incorporated - 4.55%.

The largest share of allocation by country is the USA, 87.0%.

The largest share of allocation by sector is Health Technology, 95.8%.

The average P / E Ratio for the portfolio is 20.8x.

ETF yield since the beginning of the year - (0.54%).

2. ARK Genomic Revolution ETF

Current price: $ 76.37.

Ticker: ARKG.US

The ARK Genomic Revolution ETF (ARKG) is a fund, actively managed by Catherine Wood's consulting firm, ARK Invest. They choose companies that create the maximum revenues from breakthroughs in energy, automation, manufacturing, materials, and transportation.

ARK Invest outperforms the market, which is something that most asset management firms cannot do. ARKG makes investments in firms that will benefit from technological and scientific developments in gene editing, genetic therapy, molecular diagnostics, and stem cell development. According to the Fact Sheet, ARK Genomic Revolution has an average of 40–45 distinct pieces. ARKG was able to demonstrate a profit margin of more than 444.5 percent thanks to skilled management throughout a 5-year period.

Key facts:

  • Assets under management, AUM - $ 7.90 billion
  • Dividend yield - 0.79%.
  • Expense Ratio - 0.75%.
  • The number of names of shares in ETF is 40–45.

Companies with the largest ETF allocations:

  • Teladoc Health, Inc. - 7.19%;
  • Exact Sciences Corporation - 5.16%;
  • Pacific Biosciences of California, Inc. - 4.70%;
  • Regeneron Pharmaceuticals, Inc. - 4.57%;
  • Twist Bioscience, Corp. - 4.13%.

The largest share of allocation by country is the USA, 84.8%.

The largest share of allocation by sector is Health Technology, 71.7%.

ETF yield YTD - (-16.47%).

3. SPDR S&P Biotech ETF

The current price is $ 124.95.

Ticker: XBI.US

XBI is one of the few biotech ETFs that provides access to a market share that can perform well during periods of consolidation while also making significant gains in the event of a major medication approval. The fund invests solely in US equities and mostly in mid and small-cap stocks.

The XBI portfolio is fairly constrained, but the weighted benchmark methodology guarantees that assets are distributed evenly across all components. This role is especially crucial in the biotech industry, where certain companies can achieve enormous success in a short period. This ETF's underlying index is S&P Biotechnology Select Industry.

Key facts:

  • Assets under management, AUM - $ 6.83 billion
  • Dividend yield - 0.25%.
  • Expense Ratio - 0.35%.
  • The number of names of shares in ETF - 192.

Companies with the largest ETF allocations:

  • Vericel Corporation - 0.92%;
  • United Therapeutics Corporation - 0.87%; 
  • Moderna, Inc. - 0.87%;
  • Intellia Therapeutics, Inc. - 0.87%;
  • Zentalis Pharmaceuticals, Inc. - 0.82%. 

The largest share of allocation by country is the USA, 98.0%.

The largest share of allocation by sector is Health Technology, 97.8%.

The average P / E Ratio for the portfolio is 9.3x.

ETF yield YTD - (-9.64%).

How to Buy ETFs?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy ETFs in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type IBB.US (iShares Nasdaq Biotechnology ETF ticker), ARKG.US (ARK Genomic Revolution ETF ticker), and XBI.US (SPDR S&P Biotech ETF ticker) in the search box, and select the appropriate ETF in the results. Open a secure session in the trading window on the right, select the number of securities you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type IBB.US (iShares Nasdaq Biotechnology ETF ticker), ARKG.US (ARK Genomic Revolution ETF ticker), and XBI.US (SPDR S&P Biotech ETF ticker), and select the appropriate ETF in the results. You will then see the ETF in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of securities you want to buy and click Buy.

Go to Freedom24 web platform >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.

  • Sources of information

  • Recommendation evaluation methodology in accordance with Terms and Conditions of Market Research Use
    Freedom Finance analysts perform a three-stage analysis. They select a promising industry based on the latest news, statistics and industry-specific metrics. They assess the supply and demand situation and its future development dynamics. Industry’s investment attractiveness is mostly affected by the forecasted market growth rates; total addressable market, player concentration level and likeliness of a monopoly formation, as well as the level of regulation by various entities or associations.

    The assessment is followed by the comparative analysis based on the selected sample. The sample comprises companies with a market capitalization of over USD 1 billion, but there is space for exceptions (when the suitable level of liquidity for company’s securities is available on the stock exchange). The selected companies (peers) are being compared against each other based on multipliers (EV/S, EV/EBITDA, PE, P/FCF, P/B), revenue growth rates, marginality and profitability (operating income margin, net income margin, ROE, ROA), and business performance.

    Having completed the comparative analysis, the analysts carry out a more in-depth research of the news about the selected company. They review company’s development policy, information about its current and potential mergers and acquisitions (M&A activity), and assess the efficiency of company's inorganic growth and other news about it over the past year. The main objective at this stage is to identify the growth drivers and evaluate their stability, as well as the extent of impact they have on the business.

    Based on all the data collected, the analysts determine the weighted forecasted figures of company’s growth rates and proposed business marginality, which are used to calculate the company’s multiplier-based estimated value. The said value enables setting the stock price target and stock value growth potential.

    The expected timing of the idea implementation is set depending on the current market situation, volatility level and available forecasting horizon for industry and company development. The forecasting period is normally set between 3 and 12 months.