Best Biotech ETFs for Q1 2022

Biotech companies use or modify biological processes to create new pharmaceuticals or therapies. Some of the most prominent biotech companies include Vertex Pharmaceuticals Inc. (VRTX) and Regeneron Pharmaceuticals Inc. (REGN).

Investing in the biotech sector can be risky. The scientific and regulatory issues involved with gaining approval from the U.S. Food and Drug Administration (FDA) can be substantial, making it risky and difficult to predict which biotech stocks will outperform. One of the easiest ways to invest in the sector is through biotech exchange-traded funds (ETFs). These funds have holdings in a large array of biotech companies, offering investors a well-diversified portfolio in one easy-to-execute trade.

Key Takeaways

  • The biotech sector underperformed the broader market over the past year.
  • The biotech exchange-traded funds (ETFs) with the best one-year trailing total returns are BBH, PBE, and IDNA.
  • The top holding of both BBH and IDNA is Moderna, and the top holding of PBE is Repligen Corp.

Ten biotech ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The biotech sector, as measured by the Nasdaq Biotechnology Index, has underperformed the broader market with a total return of 11.0% over the past 12 months compared to the S&P 500’s total return of 31.2%, as of Nov. 24, 2021. The best-performing biotech ETF, based on performance over the past year, is the VanEck Biotech ETF (BBH).

We examine the top three biotech ETFs below. All numbers as of Nov. 24, 2021.

  • Performance Over One-Year: 24.1%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.32%
  • Three-Month Average Daily Volume: 15,626
  • Assets Under Management: $578.7 million
  • Inception Date: Dec. 20, 2011
  • Issuer: VanEck

BBH tracks the MVIS US Listed Biotech 25 Index, an index of companies involved in the development and production, sales, and marketing of therapies based on genetic analysis and diagnostic equipment. The fund is highly concentrated in a few names, with the top 10 of its 25 holdings accounting for more than 59% of all invested assets.

BBH’s top holdings include Moderna Inc. (MRNA), a pharmaceutical and biotechnology company that specializes in vaccine technologies based on messenger ribonucleic acid (mRNA); Amgen Inc. (AMGN), a biopharmaceutical company focused on treating serious illnesses and hard-to-cure diseases; and Gilead Sciences, Inc. (GILD), a biopharmaceutical company that researches, develops, and commercializes innovative medicines.

  • Performance Over One-Year: 16.3%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 5,147
  • Assets Under Management: $280.8 million
  • Inception Date: June 23, 2005
  • Issuer: Invesco

PBE is part of a suite of dynamic funds from PowerShares and provides exposure to the biotech subsector of the U.S. health care industry. The fund tracks the Dynamic Biotech & Genome Intellidex℠ Index, which comprises securities of 30 U.S. biotech and genome companies. PBE and the index it tracks are rebalanced and reconstituted on a quarterly basis—February, May, August, and November.

PBE’s portfolio allocation blends large, mid, and small-cap companies either offering growth or value investing. The fund’s top holdings include Repligen Corp. (RGEN), a company that provides bioprocessing solutions and technologies for the manufacture of biologic drugs; Catalent Inc. (CTLT), a developer and provider of manufacturing solutions for drugs, cell and gene therapies, protein-based biologics, and consumer health products; and Dicerna Pharmaceuticals Inc. (DRNA), a biopharmaceutical company that leverages ribonucleic acid interference (RNAi) to create medicines that turn off disease-causing genes.

  • Performance Over One-Year: 13.4%
  • Expense Ratio: 0.47%
  • Annual Dividend Yield: 0.18%
  • Three-Month Average Daily Volume: 57,177
  • Assets Under Management: $346.5 million
  • Inception Date: June 11, 2019
  • Issuer: BlackRock Financial Management

IDNA is a multi-cap blended fund that tracks the NYSE FactSet Global Genomics and Immuno Biopharma Index, which is made up of companies that may benefit from long-term growth and innovation in genomics, immunology, and bioengineering. The fund invests in companies from both developed and emerging markets, although the large majority of its holdings are domiciled in the United States or Germany.

IDNA’s top holdings include Moderna Inc. (MRNA), as described above; sponsored American depositary receipts (ADRs) of BioNTech SE (BNTX), a German biotechnology company that manufactures immunotherapies; and Merck (MRK), a health solutions provider through vaccines, prescription medicines, biologic therapies, animal health, and consumer health products.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.