12 Best Biotech ETFs To Buy

Published on August 4, 2023 at 7:28 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 12 best biotech ETFs to buy. If you want to skip our detailed discussion on the biotech industry, head directly to 5 Best Biotech ETFs To Buy.

According to Precedence Research, the worldwide biotechnology market was valued at approximately $1,224.31 billion in 2022. It is projected to reach a value of around $3,210.71 billion by 2030, with a compound annual growth rate (CAGR) of 12.8% from 2023 to 2030. The biotechnology industry in countries like China, Japan, and India is witnessing growth propelled by positive government policies. These initiatives target the improvement of medical regulation, standardization of clinical studies, enhancement of reimbursement policies, and acceleration of product approval processes, all of which are expected to create profitable growth prospects for the biotechnology sector

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To name a few hindrances plaguing the biotech industry, EY in a report observed that the 2022 revenue of public biotech companies declined by 1% compared to 2021 due to decreased demand for COVID-19 vaccines and antiviral treatments. 2023 is anticipated to see five patent expirations for well-established biologic products, resulting in a significant loss of revenue. Furthermore, over 20 products, accounting for nearly $200 billion in annual sales, are expected to lose patent protection by 2030. The US Food and Drug Administration (FDA) experienced a decline in approvals for new molecular entities and biologics license applications in 2022, which was attributed to staffing shortages. However, approvals returned to pre-pandemic levels in Q1 of 2023. Lastly, in 2022, all forms of biotech financing, including venture capital investment, debt financing, IPOs, and follow-on offerings, decreased substantially.

According to Ashwin Singhania, Principal at EY-Parthenon:

“Innovation is the engine that drives the biotech industry. While the approaching patent cliff is an unavoidable challenge, the pipeline continues to be very robust and the pace of innovation continues to accelerate. If executives can prioritize streamlining processes and the ongoing investment in organic innovation and inorganic growth, they will set themselves up for future success.”

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On a positive note, RBC Capital Markets predicts that large-cap biotech companies with revenue resilience, less binary risk, and optimistic earnings guidance will maintain momentum in early 2023. While some larger companies have set themselves up for future growth and diversification, 2023 may be a flat earnings year for many large caps due to patent expirations and COVID-19 revenue declines. On the other hand, smaller-cap biotechs, though recovering from mid-year lows, have underperformed compared to larger and mid-cap biotechs and pharma. However, some high-quality, catalyst-driven smaller-cap companies are forecasted to perform well in 2023, driven by increasing regulatory permissiveness and potential M&A activity. M&A activity is also expected to rise as large biopharma companies sit on strong balance sheets, face patent cliffs, and experience better policy clarity. This potential uptick in M&A could act as a catalyst for biotech stocks, driving growth and diversification among larger-cap companies facing challenges.

Some of the best biotech stocks to invest in include Eli Lilly and Company (NYSE:LLY), Pfizer Inc. (NYSE:PFE), and AbbVie Inc. (NYSE:ABBV). However, in this article, we discuss the best biotech ETFs to buy.

Our Methodology

We chose ETFs that offer exposure to large-, mid- and small-cap biotech ETFs to create a well-rounded list of the popular funds. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These biotech ETFs have amassed significant gains in the last 5 years. The list is ranked in ascending order of the 5-Year performance as of August 4, 2023.

Photo by National Cancer Institute on Unsplash

Best Biotech ETFs To Buy

12. iShares Biotechnology ETF (NASDAQ:IBB)

5-Year Performance as of August 4: 8.70%

iShares Biotechnology ETF (NASDAQ:IBB) aims to replicate the performance of the ICE Biotechnology Index, which is composed of biotechnology companies listed in the United States. As of August 1, 2023, the ETF had net assets worth $7.5 billion, and its portfolio consists of 266 stocks. iShares Biotechnology ETF (NASDAQ:IBB) has an expense ratio of 0.45% and it is one of the best biotech ETFs to buy.

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the largest holding of the iShares Biotechnology ETF (NASDAQ:IBB). It is a biotechnology firm focused on the development and commercialization of treatments for cystic fibrosis. On August 1, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) reported a Q2 non-GAAP EPS of $3.89 and a revenue of $2.49 billion, outperforming Wall Street estimates by $0.01 and $70 million, respectively.

According to Insider Monkey’s first quarter database, 44 hedge funds were bullish on Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), compared to 60 funds in the prior quarter. Ian Simm’s Impax Asset Management is the largest stakeholder of the company, with 762,347 shares worth approximately $240 million.

In addition to Eli Lilly and Company (NYSE:LLY), Pfizer Inc. (NYSE:PFE), and AbbVie Inc. (NYSE:ABBV), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is one of the best biotech stocks to invest in.

11. ARK Genomic Revolution ETF (BATS:ARKG)

5-Year Performance as of August 4: 10.40%

ARK Genomic Revolution ETF (BATS:ARKG) is an actively managed ETF focused on long-term capital growth through investments in domestic and foreign companies from sectors relevant to the genomics revolution theme, including healthcare, information technology, materials, energy, and consumer discretionary. Launched on October 31, 2014, the ETF has an expense ratio of 0.75% and holds around 40-60 assets in its portfolio, with net assets totaling $2,158 million. ARK Genomic Revolution ETF (BATS:ARKG) is one of the best biotech ETFs to invest in.

Exact Sciences Corporation (NASDAQ:EXAS), an American provider of cancer screening and diagnostic test products worldwide, is the top holding of ARK Genomic Revolution ETF (BATS:ARKG). On August 1, Exact Sciences Corporation (NASDAQ:EXAS) reported a Q2 GAAP EPS of -$0.45 and a revenue of $622.1 million, exceeding Wall Street estimates by $0.06 and $20.97 million, respectively.

According to Insider Monkey’s first quarter database, 38 hedge funds were bullish on Exact Sciences Corporation (NASDAQ:EXAS), compared to 39 funds in the prior quarter. Cathie Wood’s ARK Investment Management is the largest stakeholder of the company, with 11.3 million shares worth $771.6 million.

Baron Health Care Fund made the following comment about Exact Sciences Corporation (NASDAQ:EXAS) in its second quarter 2023 investor letter:

“We added to our position in Exact Sciences Corporation (NASDAQ:EXAS), a cancer diagnostics company whose flagship product is Cologuard, a stool-based DNA colon cancer screening test. We wrote about Exact Sciences in the first quarter. The company’s core Cologuard business has strong momentum, as confirmed by the company’s recent first quarter financial results. Exact also demonstrated better-than-expected profitability, and management accelerated its timeline to be free cash flow positive to 2023, one year ahead of schedule. The company recently announced that its next generation Cologuard test demonstrated improved sensitivity and specificity for colorectal cancer compared with the first-generation Cologuard test. Once approved and commercialized, the second-generation Cologuard test should result in lower false positives, which should benefit Exact by boosting its gross margins. We continue to believe Exact has a long runway for growth in the Cologuard business. In addition, we think Exact’s initiatives in minimal residual disease testing and multi-cancer early detection represent significant optionality.”

10. VanEck Biotech ETF (NASDAQ:BBH)

5-Year Performance as of August 4: 22.58%

VanEck Biotech ETF (NASDAQ:BBH)’s goal is to closely mimic the price and yield performance of the MVIS US Listed Biotech 25 Index. This index is designed to monitor the overall performance of companies engaged in the development, production, marketing, and sales of drugs based on genetic analysis and diagnostic equipment. VanEck Biotech ETF (NASDAQ:BBH) was established on December 20, 2011, and as of August 1, 2023, it holds a total of $484.95 million in net assets, with an expense ratio of 0.35%. It is one of the best biotech ETFs to buy.

Amgen Inc. (NASDAQ:AMGN) is the top holding of VanEck Biotech ETF (NASDAQ:BBH). Amgen Inc. (NASDAQ:AMGN) develops, manufactures, and distributes human therapeutics worldwide. Its primary areas of focus include inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience. On August 1, Amgen Inc. (NASDAQ:AMGN) declared a $2.13 per share quarterly dividend, in line with previous. The dividend is payable on September 8, to shareholders of record on August 18.

According to Insider Monkey’s first quarter database, 57 hedge funds were bullish on Amgen Inc. (NASDAQ:AMGN), compared to 60 funds in the prior quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the largest position holder in the company, with 1.6 million shares worth $404.4 million.

Here is what Smead Capital Management has to say about Amgen Inc. (NASDAQ:AMGN) in its Q3 2022 investor letter:

“Two things are very noticeable right off the top. First, sometimes you have to be happy losing less in a bear market environment so that you have more of your capital to grow in the next bull market. We are never really happy losing money. Second, 2022 is likely to be our third year of existence as a fund to lose money for the year. This year would join 2008 and 2018 in this undistinguished category. Our biggest detractors were dominated by Amgen (NASDAQ:AMGN). Consumer/investor fears about media and e-commerce hit WBD and EBAY and profit taking in Amgen came from early 2022 strength.”

9. Virtus LifeSci Biotech Products ETF (NYSE:BBP)

5-Year Performance as of August 4: 22.59%

Virtus LifeSci Biotech Products ETF (NYSE:BBP) follows the price and yield performance of the LifeSci Biotechnology Products Index, which consists of biotechnology companies listed in the United States. Virtus LifeSci Biotech Products ETF (NYSE:BBP) was established on December 17, 2014. As of August 1, 2023, the ETF manages assets worth $19.34 million with an expense ratio of 0.79%. The ETF’s portfolio includes 57 stocks, and it provides a distribution yield of 0.20%.

The largest holding of Virtus LifeSci Biotech Products ETF (NYSE:BBP) is BridgeBio Pharma, Inc. (NASDAQ:BBIO). The company is involved in the exploration, advancement, and distribution of different medications to treat genetic diseases. On July 17, BridgeBio Pharma, Inc. (NASDAQ:BBIO) stock skyrocketed by 80% following the company’s announcement of its intention to seek US regulatory approval for its drug acoramidis by the year-end. The decision was driven by the release of favorable Phase 3 data for the drug’s effectiveness in treating transthyretin amyloid cardiomyopathy (ATTR-CM).

According to Insider Monkey’s first quarter database, 44 hedge funds were bullish on BridgeBio Pharma, Inc. (NASDAQ:BBIO), compared to 28 funds in the prior quarter. Andreas Halvorsen’s Viking Global is the largest stakeholder of the company, with 26.6 million shares worth $441.3 million.

8. Franklin Genomic Advancements ETF (BATS:HELX)

5-Year Performance as of August 4: 25.18%

Franklin Genomic Advancements ETF (BATS:HELX) is an actively managed fund introduced by Franklin Templeton on February 25, 2020. It focuses on investing in companies that are expected to gain from advancements in genomic-based research techniques and technologies. The ETF offers an expense ratio of 0.50% and comprises a portfolio of 58 stocks. Franklin Genomic Advancements ETF (BATS:HELX) is one of the best biotech ETFs to buy based on 5-year performance.

Thermo Fisher Scientific Inc. (NYSE:TMO) is the largest holding of Franklin Genomic Advancements ETF (BATS:HELX). Thermo Fisher Scientific Inc. (NYSE:TMO) offers a wide range of life sciences solutions, analytical instruments, specialty diagnostics, laboratory products, and biopharma services worldwide. On July 13, Thermo Fisher Scientific Inc. (NYSE:TMO) declared a $0.35 per share quarterly dividend, in line with previous. The dividend is payable on October 13, to shareholders of record on September 15.

According to Insider Monkey’s first quarter database, 98 hedge funds were bullish on Thermo Fisher Scientific Inc. (NYSE:TMO), compared to 92 funds in the prior quarter. David Blood and Al Gore’s Generation Investment Management is the biggest stakeholder of the company, with 1.4 million shares worth $854.8 million.

Baron Health Care Fund made the following comment about Thermo Fisher Scientific Inc. (NYSE:TMO) in its second quarter 2023 investor letter:

“Thermo Fisher Scientific Inc. (NYSE:TMO) is the world’s largest life sciences tools company. Thermo Fisher provides analytical instruments, laboratory equipment, software, services, consumables, and reagents for life sciences research, manufacturing, analysis, discovery, and diagnostics. Shares fell along with other life sciences tools stocks because of multiple headwinds, including a slowdown in capital spending among pharmaceutical customers, slowed growth in China, lack of funding and spending among pre-commercial biotechnology companies, and inventory destocking among bioprocessing customers. We view these headwinds as temporary and believe management can achieve its long-term goal of solid mid- to high single-digit organic revenue growth driven by long-term end-market dynamics in the life sciences industry, including favorable demographics, scientific advances, new technology, and increased regulations.”

7. First Trust Health Care AlphaDEX Fund (NYSE:FXH)

5-Year Performance as of August 4: 32.75%

First Trust Health Care AlphaDEX Fund (NYSE:FXH) tracks the performance of the StrataQuant Health Care Index, aiming to achieve investment results similar to its price and yield before fees and expenses. Established on May 8, 2005, the ETF holds $1.5 billion in net assets with an expense ratio of 0.61% as of August 1, 2023. The fund’s portfolio consists of 85 stocks. First Trust Health Care AlphaDEX Fund (NYSE:FXH) is one of the best biotech ETFs to invest in.

United Therapeutics Corporation (NASDAQ:UTHR) is the largest holding of First Trust Health Care AlphaDEX Fund (NYSE:FXH). United Therapeutics Corporation (NASDAQ:UTHR) is a biotechnology company that specializes in developing and selling products that cater to the medical needs of patients suffering from chronic and life-threatening illnesses. On August 2, United Therapeutics Corporation (NASDAQ:UTHR) reported a Q2 GAAP EPS of $5.24 and a revenue of $596.5 million, outperforming Wall Street estimates by $0.75 and $72.33 million, respectively.

According to Insider Monkey’s first quarter database, 51 hedge funds were bullish on United Therapeutics Corporation (NASDAQ:UTHR), compared to 49 funds in the prior quarter. Kurt Von Emster’s VenBio Select Advisor is the largest stakeholder of the company, with 2.87 million shares worth $642.7 million.

6. iShares Global Healthcare ETF (NYSE:IXJ)

5-Year Performance as of August 4: 41.28%

iShares Global Healthcare ETF (NYSE:IXJ) aims to replicate the performance of the S&P Global 1200 Healthcare Sector Index, which includes global healthcare sector equities, including pharmaceutical, biotechnology, and medical device companies. As of August 1, 2023, the ETF’s total net assets amount to nearly $4 billion, with an expense ratio of 0.42%. The fund’s portfolio comprises 112 stocks. iShares Global Healthcare ETF (NYSE:IXJ) is one of the best biotech ETFs to monitor.

UnitedHealth Group Incorporated (NYSE:UNH), an American multinational healthcare company, is the largest holding of the iShares Global Healthcare ETF (NYSE:IXJ). On July 14, UnitedHealth Group Incorporated (NYSE:UNH) reported Q2 non-GAAP earnings per share of $6.14, beating market consensus by $0.16. The revenue increased 15.6% year-over-year to $92.9 billion, outperforming Wall Street estimates by $1.94 billion.

According to Insider Monkey’s first quarter database, Rajiv Jain’s GQG Partners is the leading position holder in UnitedHealth Group Incorporated (NYSE:UNH), with 4.8 million shares worth $2.28 billion.

Like Eli Lilly and Company (NYSE:LLY), Pfizer Inc. (NYSE:PFE), and AbbVie Inc. (NYSE:ABBV), UnitedHealth Group Incorporated (NYSE:UNH) is one of the top biotech stocks to consider.

L1 Capital International Fund made the following comment about UnitedHealth Group Incorporated (NYSE:UNH) in its second quarter 2023 investor letter:

“Close observers of the Fund will note the increased exposure to healthcare, currently 13% of the portfolio. Healthcare is generally less macro-sensitive than some other sectors. In a reversal of market sentiment compared to 2022, the healthcare sector has been under modest pressure due to what we consider to be some short-term transitory issues, while technology, particularly anything to do with AI, has become the market’s dish du jour. We have been selectively increasing our investment in a few very high-quality healthcare businesses at prices we consider to be fair. UnitedHealth Group Incorporated (NYSE:UNH) is now a top 10 holding, and our investment thesis is outlined in this report.

We have previously written on our exposure to taxes through our investment in Intuit and its market leading TurboTax franchise (Intuit also owns the QuickBooks small business accounting franchise, Credit Karma and Mailchimp). UnitedHealth Group (UnitedHealth) is leading the charge to postpone the inevitable, while lowering overall healthcare system costs.

U.S. health spending has outpaced GDP growth for decades, with spending on healthcare increasing from around 12% of GDP in the 1980s to nearly 20% today, driven by advancements in healthcare capabilities and an aging population with increased life expectancy…” (Click here to read the full text)

Click to continue reading and see 5 Best Biotech ETFs To Buy.

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