Making its debut on 01/31/2006, smart beta exchange traded fund SPDR S&P Biotech ETF (XBI) provides investors broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is sponsored by State Street Global Advisors. It has amassed assets over $6.43 billion, making it one of the largest ETFs in the Health Care ETFs. XBI, before fees and expenses, seeks to match the performance of the S&P Biotechnology Select Industry Index.
The S&P Biotechnology Select Industry Index represents the biotechnology sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Biotech Index is a modified equal weight index.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 0.15%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For XBI, it has heaviest allocation in the Healthcare sector --about 100% of the portfolio.
When you look at individual holdings, Natera Inc (NTRA) accounts for about 3.48% of the fund's total assets, followed by Incyte Corp (INCY) and Gilead Sciences Inc (GILD).
XBI's top 10 holdings account for about 27.14% of its total assets under management.
Performance and Risk
The ETF has gained about 0% and is up about 1.01% so far this year and in the past one year (as of 01/02/2025), respectively. XBI has traded between $82.22 and $104.18 during this last 52-week period.
The ETF has a beta of 0.93 and standard deviation of 34.28% for the trailing three-year period, making it a high risk choice in the space. With about 147 holdings, it effectively diversifies company-specific risk.
Alternatives
SPDR S&P Biotech 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 iShares Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. First Trust NYSE Arca Biotechnology ETF has $1.11 billion in assets, iShares Biotechnology ETF has $6.43 billion. FBT has an expense ratio of 0.56% 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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Get it free >>SPDR S&P Biotech ETF (XBI): ETF Research Reports
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
Incyte Corporation (INCY) : Free Stock Analysis Report
iShares Biotechnology ETF (IBB): ETF Research Reports
First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
Natera, Inc. (NTRA) : Free Stock Analysis Report
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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.
