The iShares Biotechnology ETF (IBB) made its debut on 02/05/2001, and is a smart beta exchange traded fund that provides 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of 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
The fund is sponsored by Blackrock. It has amassed assets over $6.92 billion, making it one of the largest ETFs in the Health Care ETFs. Before fees and expenses, IBB seeks to match the performance of the Nasdaq Biotechnology Index.
The ICE Biotechnology Index contains securities of NASDAQ listed companies that are classified as either biotechnology or pharmaceuticals.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.45%.
The fund has a 12-month trailing dividend yield of 0.32%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.
Looking at individual holdings, Gilead Sciences Inc (GILD) accounts for about 9.30% of total assets, followed by Vertex Pharmaceuticals Inc (VRTX) and Amgen Inc (AMGN).
The top 10 holdings account for about 48.6% of total assets under management.
Performance and Risk
Year-to-date, the iShares Biotechnology ETF has added about 4.25% so far, and it's up approximately 14.44% over the last 12 months (as of 12/09/2024). IBB has traded between $124.64 and $149.47 in this past 52-week period.
The ETF has a beta of 0.72 and standard deviation of 21.90% for the trailing three-year period, making it a high risk choice in the space. With about 219 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares Biotechnology ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
First Trust NYSE Arca Biotechnology ETF (FBT) tracks NYSE Arca Biotechnology Index and the SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index. First Trust NYSE Arca Biotechnology ETF has $1.18 billion in assets, SPDR S&P Biotech ETF has $7.16 billion. FBT has an expense ratio of 0.56% and XBI charges 0.35%.
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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>iShares Biotechnology ETF (IBB): ETF Research Reports
Amgen Inc. (AMGN) : Free Stock Analysis Report
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
SPDR S&P Biotech ETF (XBI): ETF Research Reports
First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
