An exchange traded fund, otherwise known as an ETF (such as financial ETF, silver ETF, natural gas ETF, water ETF, etc.) is an easy investment which can be in any number of industries. Some choose to invest with exchange traded funds in precious metals like investing in silver stocks, water, natural gas or various other industries. It is the perfect investment for those who don’t have the time or inclination to continuously pore over financial reports and statistical analyses of various industries. Here we will look at the best biotech ETF investments currently available.
These five are the most popular exchange traded funds in the biotech industry right now are:
PowerShares Dynamic Biotech and Genome (PBE), SPDR Biotech ETF (XBI), IShares NASDAQ Biotechnology (IBB), First Trust AMEX Biotechnology (FBT) and Biotech HOLDRs (BBH).
Before deciding on the best biotech ETF for you to invest in, it is important to first understand what drives fluctuation in the biotech market. Management and any takeover activity, new products, price drivers and factors and the regulatory environment will all have affects on your investment. Once you understand the reasons behind changes in the market you will, over time learn to predict changes to your advantage.
Management and Takeover Activity: The biotech industry is constantly changing its company and management structure. The acquisition and merger process of different companies is ongoing and has a big impact on the company’s profitability either temporarily or permanently. What is common is to see large companies purchase smaller companies at a premium when they have new products or discoveries in the pipeline. If you are able to keep track of these types of acquisitions you are able to follow the successful development of products and materials as opposed to companies.
New Products: Biotech companies will often invest largely in new developing products and materials. New products can prove successful in the commercial market however success rates are low and more often than not we see the product fail in the commercial market which can result in the demise of smaller biotech companies. Small companies investing large amounts of their funds into products or materials than are not in high demand can be a very risky investment. For a beginner you may want to err slightly more on the side of caution than to try to back ‘extreme’ developments.
Regulatory Environment: The biotech industry is heavily regulated. This is essential as it provides protection to leading developments and those developing them. Changes to these regulations can happen unusually quickly and can mean a company’s intellectual property rights are compromised. Obviously this has huge affects on the profitability of some companies and indirectly affects exchange traded funds investors.
To go over your biotech ETF options, and discuss the specialties of each individual fund further it is recommended to speak with an ETF or investment broker to make your final decisions.