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Taking On Exposure to Innovative Biotechnology Stocks

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Exposure to biotechnology stocks

The iShares NASDAQ Biotechnology ETF (IBB) offers investors targeted exposure to biotechnology and pharmaceutical stocks listed on the NASDAQ. Biotech stocks are among the largest stocks in the United States, and they have prominent positions in the NASDAQ Composite index by weight.

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Portfolio concentrated in a few stocks

Though the fund’s underlying index may include large-, mid-, or small-capitalization companies, IBB’s capitalization-weighted selection methodology favors the largest companies in the industry. The fund is heavily concentrated in a few stocks despite holding around 160 stocks in total. The top ten holdings account for almost 59.5% of the fund’s total assets as of September 13. The portfolio includes domestic as well as US-listed foreign companies that help widen industry representation.

As a percentage of net assets, the top five stocks in the fund are Biogen (BIIB), Gilead Sciences (GILD), Celgene (CELG), Amgen (AMGN), and Regeneron Pharmaceuticals (REGN) with respective weights of 8.91%, 8.79%, 8.41%, 8.33%, and 6.24%.

Many of these constituent companies are well placed to cash in on the rapid growth in the biotechnology industry. For example, Biogen, which was up 8.7% in August, raised its full-year revenue guidance due to a favorable market response to its products. Meanwhile, Gilead Sciences (GILD) recently agreed to buy Kite Pharma for about $11.9 billion. The move could substantially expand Gilead Sciences’ product portfolio in cancer immunotherapies. Gilead was up 10% in August.

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