How Could Investing in PBE Affect Your Portfolio?

Underperformer

The PowerShares Dynamic Biotechnology & Genome Portfolio ETF (PBE) seeks to follow the Dynamic Biotech & Genome Intellidex Index. Biotechnology stocks are highly risky and sensitive to market movement. Due to the poor performance of the market as a whole, PBE has underperformed with a YTD (year-to-date) return of 1.8%. PBE’s annualized return since inception is 12.7%, showing its strong performance over the years. PBE’s top five holdings are Regeneron Pharmaceuticals (REGN), Amgen (AMGN), Gilead Sciences (GILD), Alexion Pharmaceuticals (ALXN) and Incyte (INCY).

How Could Investing in PBE Affect Your Portfolio?

Low returns, accelerated recovery

The above chart compares the YTD performance of a portfolio of SPY and PBE. Due to PBE’s weak performance, the portfolio’s price movement has lagged behind the market in all past quarters. However, in October 2015, the portfolio recovered significantly, which can be attributed to the strong earnings of the biotechnology sector in 3Q15. As of November 20, 2015, the YTD return of the combined portfolio is 2.6%, less than the market YTD return of 3.0%.

Conclusion

PBE’s pure equity nature coupled with its biotechnology portfolio makes it one of the riskiest smart beta ETFs in the market. High-risk assets are generally more rewarding than medium-to-low risk assets, but are also more vulnerable to a crash. Investors should identify their risk-taking capabilities before investing in such funds.