Making its debut on 06/19/2006, smart beta exchange traded fund First Trust NYSE Arca Biotechnology ETF (FBT) provides investors broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FBT has amassed assets over $1.33 billion, making it one of the larger ETFs in the Health Care ETFs. This particular fund, before fees and expenses, seeks to match the performance of the NYSE Arca Biotechnology Index.
The NYSE Arca Biotechnology Index is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.
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.
Annual operating expenses for FBT are 0.55%, which makes it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 1.62%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Healthcare sector - about 100% of the portfolio.
Taking into account individual holdings, Sarepta Therapeutics, Inc. (SRPT) accounts for about 4.10% of the fund's total assets, followed by Neurocrine Biosciences, Inc. (NBIX) and Exelixis, Inc. (EXEL).
Its top 10 holdings account for approximately 38.47% of FBT's total assets under management.
Performance and Risk
The ETF has lost about -16.16% and is down about -13.10% so far this year and in the past one year (as of 05/06/2022), respectively. FBT has traded between $135.77 and $176.20 during this last 52-week period.
The ETF has a beta of 0.91 and standard deviation of 25.51% for the trailing three-year period, making it a high risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust NYSE Arca Biotechnology ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index and the iShares Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $5.72 billion in assets, iShares Biotechnology ETF has $7.53 billion. XBI has an expense ratio of 0.35% and IBB charges 0.45%.
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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First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
Exelixis, Inc. (EXEL): Free Stock Analysis Report
iShares Biotechnology ETF (IBB): ETF Research Reports
Neurocrine Biosciences, Inc. (NBIX): Free Stock Analysis Report
Sarepta Therapeutics, Inc. (SRPT): Free Stock Analysis Report
SPDR S&P Biotech ETF (XBI): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
