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
Key Data Points
- Total assets: $5.8 billion
- Expense ratio: 0.44%
- Dividend yield: 0.28%
The iShares Biotechnology ETF (IBB +2.88%) attempts to track the results of an index that includes all U.S.-listed stocks in the biotechnology sector. The ETF currently owns around 251 biotech stocks.
Among the iShares Biotechnology ETF's top holdings are some of the biggest biotech stocks based on market capitalization rank. They include Gilead Sciences (GILD +3.73%), Amgen (AMGN +4.55%), Regeneron Pharmaceuticals (REGN +3.03%), Vertex Pharmaceuticals (VRTX +1.90%), and Alnylam Pharmaceuticals (ALNY +2.32%).
Since its inception in 2001, the ETF has delivered an average annualized total return of 5.81%. Over the past five years, it has generated an annualized total return of negative 1.29%.
2. SPDR S&P Biotech ETF
NYSEMKT: XBI
Key Data Points
- Total assets: $5.6 billion
- Expense ratio: 0.35%
- Dividend yield: 0.05%
The SPDR S&P Biotech ETF (XBI +3.56%) seeks to track the S&P Biotechnology Select Industry Index. The index uses a modified equal weighting, which means the percentage of total assets for each stock owned is roughly the same. It gives investors exposure to large-cap, mid-cap, and small-cap biotech stocks.
The ETF currently owns around 121 stocks. Its top holdings include Alnylam Pharmaceuticals, Insmed (INSM +0.79%), United Therapeutics (UTHR +0.95%), Halozyme Therapeutics (HALO +3.09%), and Incyte (INCY +2.07%). However, because of its modified equal weighting, none of the largest positions in the ETF make up a significantly greater percentage of assets than other stocks.
The SPDR S&P Biotech ETF has delivered a total annualized return of about 9.3% since its inception in 2006. Over the past five years, however, the ETF generated an average annual return of negative 4.19%.
3. Ark Genomic Revolution ETF
NYSEMKT: ARKG
Key Data Points
4. First Trust NYSE Arca Biotechnology Index Fund
NYSEMKT: FBT
Key Data Points
5. VanEck Biotech ETF
Related investing topics
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.
FAQ
About the Author
