Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Better Way to Invest in Biotech?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

With the market down so much, even losing funds look good if they haven't lost very much. The Biotech HOLDR (NYSE: BBH  ) fund, for instance, has managed to eke out relatively good returns, drawing investor interest. Still, this is not your typical portfolio and should be looked at very carefully before dipping your toe in.

Fund specifics
HOLDRs enable investors to purchase a slice of the market in a number of specific sectors, from broadband companies to regional banks. Structured as a trust, the Biotech HOLDR holds common stock of companies in the biotechnology industry.

Unlike some sector exchange-traded funds (ETFs) that are well-diversified with dozens of securities, Biotech HOLDR has nearly 95% of its assets in just five stocks: Genentech (NYSE: DNA  ) , Amgen (Nasdaq: AMGN  ) , Gilead Sciences (Nasdaq: GILD  ) , Biogen Idec (Nasdaq: BIIB  ) , and Genzyme (Nasdaq: GENZ  ) . Investors also have direct ownership of the underlying stocks. That means dividends are paid directly, resulting in numerous tax reporting obligations. There are no management fees, but there are transaction costs and an annual custody fee of $0.08 per HOLDR share. 

Fund facts

  • Year-to-Date Return: 2.5%
  • Expense Ratio: none; $0.08/share custody fee
  • Assets: $1.2 billion 

Fund prospects and risks
A HOLDR is a basket of stocks just like an ETF. But there the similarity ends, as each HOLDR is a static portfolio that doesn't change over time. The HOLDR is unmanaged and its component stocks do not vary. This is very different from most ETFs, which track indexes that adjust periodically due to rebalancing. If a stock is acquired, the index will often replace it, but the HOLDR will remove it and not replace it.

That means that over time, the HOLDR's portfolio can become more and more concentrated. Investors look to ETFs for their diversification benefits, yet with Biotech HOLDR, you are really not getting that benefit.

Portfolio fit?
With a new president, there's potential for changes to the American health-care system. So investors should monitor the mood in Washington and make sure their portfolios are optimally positioned for any changes.

But remember that HOLDRs may not be the best tool for biotech investors. Don't get fooled into thinking this is just another sector ETF, as its unique structure makes it more like a concentrated five-stock fund. That level of concentration brings an unusually high degree of stock-specific risk, which most investors don't want. Although the strong performance of those five biotech stocks has led to good returns for Biotech HOLDR, it requires you to put your eggs into a pretty small basket.

Related Foolishness:

Learn more about mutual funds and ETFs with the Fool's Champion Funds newsletter service. A free 30-day trial will start you on the road to investing success. 

Fool contributor Zoe Van Schyndel now lives in the Seattle area, where she enjoys the coffee and natural wonders. She does not own any of the funds or securities mentioned in this article. Biogen Idec is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2008, at 11:13 PM, bigkansasfool wrote:

    Are there HOLDRs for other things? I'm thinking financial, gambling stocks, and other high risk sectors that could use diversification.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 785496, ~/Articles/ArticleHandler.aspx, 10/25/2016 2:56:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
BIIB $290.78 Up +0.13 +0.04%
Biogen CAPS Rating: *****
GENZ.DL $76.25 Down +0.00 +0.00%
Genzyme Corp CAPS Rating: ****
GILD $74.15 Down -0.14 -0.19%
Gilead Sciences CAPS Rating: *****