All three major biotechnology ETFs—the SPDR S&P Biotech ETF (XBI), the iShares NASDAQ Biotechnology Index (IBB), and the ProShares Ultra Nasdaq Biotechnology ETF (BIB)—have posted returns of ~1% in last month, starting on August 10. That compares unfavorably with the performance of the SPDR S&P 500 ETF (SPY), which returned ~1.7% in the same period.
The above diagram highlights the net assets under management and net expense ratios of XBI, IBB, and BIB compared to SPY. The expense ratio of SPY at 0.09% is the lowest, while BIB’s at 0.95% is the highest.
The SPDR S&P Biotech ETF (XBI) is currently trading at a PE ratio of 20.4x. It has reported a one-year return of ~19.7% and a three-year return of ~10.9%. On the other hand, the iShares NASDAQ Biotechnology Index (IBB) is trading at a much lower PE multiple of 16.9x. The ProShares Ultra Nasdaq Biotechnology ETF (BIB) is trading at a PE multiple of 16.9x. It reported one-year and three-year returns of 14.5% and -2.6%, respectively.
The top ten stocks account for ~16.3% of XBI’s total holdings. IBB is less diversified than XBI, with its top ten stocks accounting for ~55.1% of its holdings. XBI is a highly concentrated ETF, with its top ten stocks accounting for ~138.6% of its asset holdings. That can be attributed to the heavy investments of these ETFs in various swap instruments such as the Nasdaq Biotechnology Index Swap Deutsche Bank Ag, the Nasdaq Biotechnology Index Swap Bank of America Na, the iShares Biotech (IBB) Swap Bank of America Na, the Nasdaq Biotechnology Index Swap Ubs Ag, the Nasdaq Biotechnology Index Swap Credit Suisse International, and the Nasdaq Biotechnology Index Swap Citibank Na. Only 48.6% of XBI’s total portfolio holdings are invested in stocks.
Although the leading biotech ETFs reported lackluster performance in the last month, there have been some biotechnology stocks that have returned as high as 50% in the same period. Investors should take notice of these stocks as well as their growth drivers when making investment decisions.
In the next part of this series, we’ll look at growth trends for Geron.