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Make Money in Biotech and Genome Stocks the Easy Way

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect biotech companies and those involved in genome research to thrive over time as our aging population's medical needs grow, the PowerShares Dynamic Biotech & Genome ETF (NYSE: PBE  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The biotech and genome ETF's expense ratio -- its annual fee -- is 0.63%.

This ETF has performed reasonably, underperforming the S&P 500, on average, over the past three years, but beating it over the past five. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. The fund is relatively small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

What's in it?
Many companies in this industry had strong performances over the past year. Amylin Pharmaceuticals (Nasdaq: AMLN  ) gained 55%, partly on FDA approval for its diabetes drug, Bydureon. The drug will compete with Novo Nordisk's Victoza, which has some advantages, but needs to be injected daily versus just once a week for Bydureon.

Incyte (Nasdaq: INCY  ) , meanwhile, gained 25%, partly due to its own FDA approval -- for its Jakafi pill, a drug designed to treat the rare bone marrow disease myelofibrosis. Approvals are important, but it still remains to be seen how well these companies market the drugs and how well they sell.

Other companies didn't do as well last year, but they could see their fortunes change in the coming years. Vertex Pharmaceuticals (Nasdaq: VRTX  ) fell 20%, for example, struggling as its successful Incivek hepatitis C drug worked too well, leading to fewer patients. Fortunately, Incivek isn't all that Vertex has, as its cystic fibrosis drug Kalydeco has received approval, and it may partner with others to develop more formulations.

Then there's Nektar Therapeutics (Nasdaq: NKTR  ) , down 14%. It's actually been on a tear so far in 2012, selling royalty rights to two of its drugs and then posting expectations-trouncing quarterly revenue and earnings results.

The big picture
Demand for new drugs and medical treatments isn't going away any time soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about the 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 Dividend Stocks for 2012.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter here, holds no position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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