Should You Invest in the iShares Biotechnology ETF (IBB)?

If you're interested in gaining exposure to the Healthcare - Biotech sector of the equity market, the iShares Biotechnology ETF (IBB - Free Report) is worth considering. Launched on February 5, 2001, this passively managed exchange-traded fund (ETF) has become increasingly popular among both retail and institutional investors.

Passively managed ETFs are known for their low costs, transparency, flexibility, and tax efficiency, making them ideal choices for long-term investors.

Sector ETFs offer access to a diverse range of companies within specific sectors, allowing for lower risk and diversified exposure. The Healthcare - Biotech sector is one of the 16 broad categories within the Zacks Industry classification and is currently ranked 3rd, placing it in the top 19% of sectors.

Index Details

The iShares Biotechnology ETF is sponsored by Blackrock and has accumulated over $6.99 billion in assets, making it one of the largest ETFs targeting the Healthcare - Biotech sector. The primary goal of IBB is to match the performance of the Nasdaq Biotechnology Index, excluding fees and expenses.

The fund tracks the ICE Biotechnology Index, which consists of securities from NASDAQ-listed companies that are classified within the biotechnology or pharmaceutical industries.

Costs

When evaluating an ETF’s total return, the expense ratio is a crucial factor. More affordable funds can perform significantly better than their pricier counterparts over the long haul, assuming all other factors remain equal.

IBB has an annual operating expense of 0.45%, which is competitive compared to many similar products in the market.

The ETF also boasts a 12-month trailing dividend yield of 0.32%.

Sector Exposure and Top Holdings

Although ETFs are designed to provide diversified exposure that reduces single stock risk, it is essential to examine the fund's actual holdings as well. Most ETFs are transparent and disclose their holdings daily.

IBB has a strong focus, with approximately 100% of its portfolio allocated to the Healthcare sector.

Some of the key individual holdings include Gilead Sciences Inc (GILD - Free Report) at about 9.30% of total assets, closely followed by Vertex Pharmaceuticals Inc (VRTX - Free Report) and Amgen Inc (AMGN - Free Report).

The top 10 holdings constitute approximately 48.60% of the total assets under management.

Performance and Risk

This ETF has experienced a gain of around 4.57% so far this year and was up about 15.97% over the past year (as of December 3, 2024). In the last 52-week timeframe, it has traded between $122.90 and $149.47.

IBB has a beta of 0.74 and a standard deviation of 21.94% over the trailing three-year period, indicating it carries a higher risk profile within its sector. Despite having around 219 holdings, it effectively minimizes company-specific risks.

Alternatives

The iShares Biotechnology ETF holds a Zacks ETF Rank of 2 (Buy), which reflects its strong expected asset class return, favorable expense ratio, and positive momentum, making IBB an excellent option for investors looking for exposure to the Healthcare ETFs sector. There are other ETFs in this space to consider as well.

The First Trust NYSE Arca Biotechnology ETF (FBT - Free Report) tracks the NYSE Arca Biotechnology Index, and the SPDR S&P Biotech ETF (XBI - Free Report) tracks the S&P Biotechnology Select Industry Index. The First Trust NYSE Arca Biotechnology ETF has approximately $1.19 billion in assets, while the SPDR S&P Biotech ETF comes in with $7.39 billion in assets. FBT has an expense ratio of 0.56%, and XBI charges 0.35%.

Bottom Line

For more insights on this ETF and other similar investment products, be sure to review options that align with your investment objectives and stay updated on the latest developments in the ETF investment space.

investment, ETF, biotechnology