9 Best Biotech ETFs for 2024

Yaël Bizouati-Kennedy
gorodenkoff / Getty Images
gorodenkoff / Getty Images

Biotechnology uses living organisms to develop new medicines and technologies that benefit both environmental and social stratospheres. If you’re interested in investing in this innovative sector, exchange-traded funds, or ETFs, can be a great way to get started. When thinking about your next move in the stock market, consider keeping biotech ETFs in mind as a strategic choice.

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Biotech ETFs: Quick Take

As with any investment objective, your short-term or long-term goals typically include factors such as capital gains, asset classes and market capitalization. ETF shares are no different. Here are some key takeaways to consider for your investment strategy before you buy or sell:

  • ETFs are baskets of stocks, securities or bonds that are sold on the stock exchange. As such, they provide diversification and are regarded as safe investments.

  • ETFs can come in a variety of flavors and can focus on specific sectors, such as biotech. These stocks pertain to companies focusing on the use of biological processes centering on medical and pharmaceutical applications.

  • One advantage of investing in a biotech ETF is that as biotech stocks tend to be volatile, an ETF may provide more cushion and lower risk since it’s investing in different companies.

Top 9 Biotech ETFs for 2024

When assessing all angles of an investment, you want to make sure your money will be working for you, or at least predicted to do so. Here are a few recommendations for biotech ETFs in 2024.

1. VanEck Biotech ETF (BBH)

  • Top five holdings: Amgen, Vertex Pharmaceuticals, Gilead Sciences, Regeneron Pharmaceuticals, Moderna

  • Average annual return since inception: 13.8%

  • Expense ratio: 0.35%

The goal of this ETF is to follow an index, the MVIS US Listed Biotech 25 Index, that follows some of the largest U.S. exchange-listed companies in biotech. These companies have specific criteria to be included, such as deriving half of their revenue from biotech-related products.

2. iShares Biotechnology ETF (IBB)

  • Top five holdings: Amgen, Regeneron Pharmaceuticals, Gilead Sciences, Vertex Pharmaceuticals, Iqvia Holdings

  • Average annual return since inception: 6.49%

  • Expense ratio: 0.45%

According to the fund’s prospectus, its goal is to follow an index of U.S.-listed equities in the biotechnology sector. In other words, this is a passive ETF, which could appeal to you if you are looking for something a bit safer, less costly and more transparent as you can see exactly which stocks the index tracks.

3. SPDR S&P Biotech ETF (XBI)

  • Top five holdings: Alpine Immune Sciences, Revolution Medicines, Exact Sciences, BioMarin Pharmaceutical

  • Average annual return since inception: 10.4%

  • Expense ratio: 0.35%

This ETF is also a passive fund — meaning it’s following an index. It also has exposure to healthcare and biotech sectors, which can provide further diversification. Additionally, it’s sponsored by State Street Global Advisors and features a competitive expense ratio of 0.35%.

4. Global X Genomics & Biotechnology ETF (GNOM)

  • Top five holdings: Natera, Crispr Therapeutics AG, Ultragenyx Pharm, Agilent Technologies, Moderna

  • Average annual return since inception: -5.73%

  • Expense ratio: 0.50%

The Global X Genomics & Biotechnology ETF is also a passive fund, which follows an index. This specific index centers around genomics as its main focus. It also tracks the Solactive Genomics Index which means that the companies included in the index generally focus on sectors such as the following:

  • Gene editing

  • Development and testing of genetic medicine and therapies

  • Computational genomics

  • Genetic diagnostics

  • Biotechnology

5. WisdomTree BioRevolution Fund (WDNA)

  • Top five holdings: Iovance Biotherapeutics, Twist Bioscience, Fate Therapeutics, Novozymes A/S, Geron

  • Average annual return since inception: -12.12%

  • Expense ratio: 0.45%

As another passive fund, WisdomTreee BioRevolution follows a different index. This index follows companies that are involved in biology-focused technologies and help further advancements in genetics. The WisdomTree BioRevolution Index and has an expense ratio of 0.45%.

Some analysts said that “this fund has a sizable cost advantage over competitors, as it is priced within the cheapest fee quintile among similar funds,” according to Morningstar Research.

6. ARK Genomic Revolution ETF (ARKG)

  • Top five holdings: Crispr Therapeutics, Twist Bioscience, Exact Sciences, Recursion Pharmaceuticals-A, Schrodinger

  • Average annual return since inception: 4.80%

  • Expense ratio:  0.75%

This ETF is an actively managed fund. Contrary to passive funds, active funds mean that a manager — or a team of managers — adjusts its investments and are hence not tied to the rules of following an index.

Broadly speaking, this fund invests in companies focused on genomics advancements. Below is a breakdown of what that could include from global equity securities of varying sectors:

  • Healthcare

  • Information technology

  • Materials

  • Energy and consumer discretionary

7. Virtus LifeSci Biotech Products ETF (BBP)

  • Top five holdings: Tarsus Pharmaceuticals, Lexicon Pharmaceuticals, Adma Biologics, Sarepta Therapeutics, Springworks Therapeutics

  • Average annual return since inception: 9.39%

  • Expense ratio: 0.79%

One of the differentiating factors of this fund is that it needs biotech stocks with at least one drug therapy approved by the U.S. Food and Drug Administration for marketing. In addition, everything from startup companies to global behemoths must meet a few requirements.

For instance, they must generate the majority of their revenue  “from the research and development and/or marketing and sale of novel drugs or other therapeutics used in the treatment of human diseases,” according to ETF.com.

8. ALPS Medical Breakthroughs ETF (SBIO)

  • Top five holdings: Viking Therapeutics, Cerevel Therapeutics, Vaxcyte, Revolution Medicines, Alpine Immune Sciences

  • Average annual return since inception: 4.67%

  • Expense ratio: 0.50%

Small- and mid-cap stocks of biotech companies that have one or more drugs — including ones in either Phase II or Phase III of the FDA — have exposure to this biotech ETF. In addition, companies need to have a market cap between $200 million and $5 billion.

9. Tema Oncology ETF (CANC)

  • Top five holdings: Regeneron Pharmaceuticals, Merck, Daiichi Sankyo, AstraZeneca PLC, Novartis AG

  • Average annual return since inception: 12.27%

  • Expense ratio: 0.75%

This fund, which launched in August 2023, is actively managed and invests in companies operating in the oncology industry.

Final Take

Before investing in an ETF, it’s essential to do your research and consider your risk tolerance and investment goals. Biotech ETFs can offer diversification and exposure to a dynamic sector, but they can also be more volatile than traditional investments. Consulting with a financial advisor can help you make informed decisions tailored to your individual needs and preferences.

FAQ

Here are the answers to some of the most frequently asked questions about biotech ETFs.

  • Is there growing interest in biotech ETFs?

    • There's growing interest and optimism around this sector, particularly as it is increasingly leveraging the use of artificial intelligence. For instance, NVIDIA recently announced a partnership with Johnson & Johnson to use generative AI in surgery and with GE HealthCare Technologies Inc. to enhance medical imaging.

  • Is investing in the biotech sector risky?

    • Investing in the biotech sector can be rewarding as it is an ever-expanding industry, especially with the advent of AI. Yet, there are also risks associated with it. For instance, biotech companies -- especially start-ups -- may have a hard time raising funds to bring their projects to completion. In addition, the products these companies develop need to go through clinical trials. And failures to pass these may result in them not becoming profitable.

  • Is there an ETF that tracks biotech?

    • Yes, there are a few ETFs that track the biotech sector. Some are the SPDR S&P Biotech ETF (XBI), iShares Biotechnology ETF (IBB) and VanEck Biotech ETF (BBH).

  • What are the top five biotech ETFs to buy?

    • Some of the top biotech ETFs are:

      • VanEck Biotech ETF (BBH)

      • iShares Biotechnology ETF (IBB)

      • SPDR S&P Biotech ETF (XBI)

      • Global X Genomics & Biotechnology ETF (GNOM)

      • WisdomTree BioRevolution Fund (WDNA)

Caitlyn Moorhead contributed to the reporting for this article.

Information is accurate as of April 18, 2024. 

This article originally appeared on GOBankingRates.com: 9 Best Biotech ETFs for 2024

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