Let’s analyze in detail two of the best ETFs in the Biotech sector that allow you to invest in this sector.
Companies active in this sector are engaged in the research and development of advanced therapies and solutions to address global medical challenges. For those who wish to participate in this scientific progress, the option of ETFs (Exchange-Traded Funds) dedicated to the biotech sector presents itself as an interesting investment opportunity. In this article, we’ll see two products in particular, specialized in the biotechnology sector, offering an in-depth analysis of the options available.
Global Biotechnology Market Landscape
In the United States, in particular, Biontech plays an important role in the biotechnology industry. In 2019, the United States was home to 1,160 biotech companies. By comparison, Germany had 706 companies engaged in biotechnology in the same period. In the American context, medical biotechnology takes a prominent position, with notable increases in jobs related to medical research, testing, and laboratories. Exemplifying the success of this sector is Humira, an anti-inflammatory drug developed by AbbVie, which generated global revenue in excess of $20 billion in 2021 alone. The forecast of sustained growth of the biopharmaceutical market is based on the constant introduction of innovations and the growing demand for cutting-edge medical technologies.
Biotechnology, however, is not limited to the medical sector. It also extends to agriculture, with biotech crops in the United States accounting for more than half of the world’s total. Furthermore, biotechnology has a significant influence in the industrial sector, contributing to innovation in nanotechnology, enzymes, and biofuels.
So what are the best ETFs that allow you to take a position in this market?
Invesco Nasdaq Biotech UCITS ETF
The Invesco Nasdaq Biotech UCITS ETF is a product aimed at replicating the performance of the Nasdaq Biotechnology index. This index tracks companies listed on the Nasdaq market that operate primarily in the field of biomedical research, focusing their efforts on the development of new therapies and cures for human diseases.
This ETF is one of the main financial instruments dedicated to the biotechnology sector, with a significant assets under management equal to 528 million euros (559 million USD). This considerable size demonstrates the interest of investors in the opportunities offered by the biotech sector and the attractiveness of this ETF in particular. Furthermore, the Invesco Nasdaq Biotech UCITS ETF represents a historic product on the topic, having been active since 2014.
This ETF employs a strategy of synthetic replication of the underlying index via an unfunded swap. This ETF, therefore, does not physically hold all the securities in the index but instead uses swaps to achieve similar performance to the index. This aspect may involve a certain degree of risk and should be carefully considered by investors. However, this method allows for greater operational efficiency than physical replication by minimizing transaction costs.
The total expense ratio (TER) of the Invesco Nasdaq Biotech UCITS ETF is 0.40% per annum. This is a rather competitive cost, considering the specialization and complexity of the biotechnology sector. Investors should consider this cost in the context of the potential return opportunities that the biotech sector offers.
The product follows an accumulation policy, i.e. the dividends generated by the companies listed in the index are reinvested in the ETF. This policy is suitable for long-term investors looking to benefit from compound growth in their investments.
Performance and risk analysis
The volatility of the Invesco Nasdaq Biotech UCITS ETF is a significant factor to consider. The 1-year volatility is 19.32%, while the 3- and 5-year volatility is 23.80% and 26.17%, respectively. These numbers indicate a higher degree of risk than many other ETFs, due primarily to the volatile nature of the biotechnology sector.
Past performance of the ETF shows a negative return over the year (-5.82%), but positive returns over the 3- and 5-year period, with +3.61% and +12.84%, respectively. However, it is important to note that past performance is not indicative of future performance, and investors should be careful to consider their time horizon and investment objectives before making decisions based on historical performance.
iShares Nasdaq US Biotechnology UCITS ETF
The iShares Nasdaq US Biotechnology UCITS ETF is a fund designed to replicate the performance of the Nasdaq Biotechnology index, like its predecessor. With assets under management of €362 million (383 million USD), the iShares Nasdaq US Biotechnology UCITS ETF is considered a rather large fund.
The ETF uses a physical replication strategy with optimized sampling, which means it only purchases the most significant components of the benchmark index. This approach allows you to maintain adequate exposure to the biotechnology sector while reducing management costs. Physical replication, in general, minimizes the risks associated with synthetic replication and may be a preferable choice for investors.
The ETF’s total expense ratio (TER) is 0.35% per annum, making it one of the most cost-effective products to track the Nasdaq Biotechnology Index. This low annual cost is a significant advantage for investors, helping to preserve more of the return generated by the investment over time.
The iShares Nasdaq US Biotechnology UCITS ETF follows an accumulation policy, which means that dividends generated by companies listed in the index are reinvested directly in the ETF.
The ETF exhibits 1-year volatility of 19.16%, indicating some degree of risk associated with this sector. Over the past year, the ETF has posted a negative return of 5.52%.
What is the best biotechnology ETF to invest in?
When comparing the iShares Nasdaq US Biotechnology UCITS ETF and the Invesco Nasdaq Biotech UCITS ETF, both ETFs track the Nasdaq Biotechnology Index, allowing investors to participate in the performance of the biotechnology sector. However, there are some key distinctions between the two products.
In terms of costs, the iShares ETF has a lower total expense ratio (TER), at 0.35% per annum, compared to 0.40% per annum for the Invesco ETF. This makes the iShares ETF cheaper for investors in terms of management fees.
The replication strategy is different: The iShares ETF uses physical replication with optimized sampling, capturing only the most significant components of the index. On the other hand, the Invesco ETF uses synthetic replication via swaps. Physical replication is generally considered less risky than synthetic replication.
Fund size varies slightly, with the Invesco ETF having slightly more assets under management at €528 million compared to the iShares ETF’s €362 million. Both, however, are of significant size.
Both the iShares and Invesco ETF posted negative YTD returns, -6.51% and -6.75% respectively, indicating a negative trend over the year. The 1-year volatility is similar between the two, with 19.16% for iShares and 19.32% for Invesco.
In conclusion, the iShares Nasdaq US Biotechnology UCITS ETF appears to be the preferred choice due to its slightly lower costs and physical replication strategy, which is generally considered less risky. However, the final decision should be based on investors’ individual needs and preferences, taking into account their time horizon and risk profile. We strongly recommend that you consult a financial advisor to obtain a personalized assessment before making an investment decision.
|Disclaimer
The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.|
Original article published on Money.it Italy 2023-10-10 07:33:00. Original title: Investire nel Biotech con i migliori ETF 2023
