Scalper1 News
Although stocks are having a rough year, investors still remain captivated by certain sectors of the market. Undoubtedly, one that remains at the top of the list is the biotech space, as this corner of the market has been a strong performer despite the volatility. However, thanks to recent market conditions, biotech has become a choppier investment, while concerns over regulation aren’t helping matters either. Still, the space is intriguing for many reasons – and especially those in it for the long term – so having at least some exposure probably makes sense for most investors. Biotech ETFs? But due to the risks, a single stock investment might be inappropriate for most investors. This space, more than most, is subject to booms and busts, where one right – or wrong – stock pick will make or break an investment idea. That is why biotech ETF investing has become so popular, as it gets rid of the company-specific risks, while still allowing exposure to the overall story. Many investors still don’t know the basics here, or the key differences between the many funds that populate that space. That is why I have distilled the market into 3 key factors that every investor needs to know before jumping into this hot corner of the market: Not All Created Equal No fund here in the unleveraged space tracks the same index, and while some, such as the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) and the Market Vectors Biotech ETF (NYSEARCA: BBH ), follow large cap-focused indexes, others use an equal-weight benchmark such as the SPDR Biotech ETF (NYSEARCA: XBI ) or a modified equal-weight benchmark like the First Trust NYSE Arca Biotechnology Index ETF (NYSEARCA: FBT ). This can have a huge impact on risk and return, so investors definitely need to keep this in mind. XBI has actually doubled IBB in the past year, largely thanks to its small cap focus. Study the Index Other funds have more stringent criteria for inclusion and do not follow the same rules as the major ETFs listed above. Funds here include the BioShares Biotechnology Clinical Trials ETF (NASDAQ: BBC ), which only holds companies that have drugs in clinical trials, or the BioShares Biotechnology Products ETF (NASDAQ: BBP ), which zeroes in stocks that have already received FDA approval for a drug. Knowing the index applies to the leveraged space too, as these can drastically alter the risk profile. For example, although the ProShares UltraPro NASDAQ Biotechnology ETF (NASDAQ: UBIO ) and the Direxion Daily S&P Biotech Bull 3x Shares ETF (NYSEARCA: LABU ) both over 3x leverage, LABU follows an equal-weight benchmark, and is thus likely to be more volatile than UBIO. Expenses! Investors often overlook expenses in this corner of the market, as most are just hoping for big gains. However, expenses can vary pretty widely in this space, and this is definitely something to consider, as they can add up for a long-term hold. In fact, the range goes from 0.35-0.85%, so your total cost can change by a big amount, thanks to this factor. Original Post Scalper1 News
Scalper1 News