Want to invest in an exciting and fast-growing sector? Biotech offers an opportunity to do so. Hundreds of biotech companies are hard at work developing innovative therapies. Some could even be game changers in preventing and treating diseases. Biotech exchange-traded funds (ETFs) own the stocks of companies that focus on the biotech sector.
Exchange-Traded Fund (ETF)
You could buy individual biotech stocks. The downside to that, though, is that many of them are very risky. Biotech ETFs allow you to lower your risk level and portfolio volatility.
Understanding biotech ETFs
ETFs are similar to mutual funds in that they can own lots of stocks (and sometimes other assets). Mutual funds, however, are only priced once per day, and you can only buy mutual funds through a brokerage or directly from the issuer.
On the other hand, ETFs trade on public exchanges just like individual stocks. And, like a stock, you can instantly buy or sell an ETF.
Investing in an ETF comes with a cost beyond just the transaction charge that a brokerage might require. The funds charge fees to cover their operating costs. The expense ratio of an ETF is calculated by dividing the fund's operating expenses by its average assets.
Biotech ETFs have all the characteristics of ETFs in general. The key difference is that these ETFs hold only the stocks of companies that focus on biotechnology.
Best biotech ETFs in 2025
The best biotech ETFs tend to be the biggest ones. They have large amounts of assets under management and relatively low expense ratios. Here are five of the best biotech ETFs.
1. iShares Biotechnology ETF
NASDAQ: IBB
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NYSEMKT: XBI
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3. Ark Genomic Revolution ETF
4. First Trust NYSE Arca Biotechnology Index Fund
NYSEMKT: FBT
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5. VanEck Biotech ETF
NASDAQ: BBH
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Benefits and risks of investing in biotech ETFs
The benefits of investing in biotech ETFs include:
- Diversification. Biotech ETFs own many biotech stocks. This reduces the risk of one big loser dragging down your returns.
- Professional management. The biotech industry is complicated. Investing in biotech ETFs gives you access to professional managers who know the industry well.
- Liquidity. Some individual biotech stocks aren't heavily traded. To sell these stocks quickly, you might have to accept a lower price. The larger biotech ETFs allow you to avoid this liquidity risk.
However, there are also several potential risks associated with investing in biotech ETFs, such as:
- Overexposure to one sector. If you invest too heavily in biotech ETFs, your overall returns could be lower during periods when biotech stocks are out of favor.
- Volatility. Biotech ETFs can be highly volatile because biotech stocks are often highly volatile.
- Less control. Biotech ETFs could own biotech stocks that you don't like. Buying these funds reduces the level of control you have over your investments.
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