A smart beta exchange traded fund, the iShares Biotechnology ETF (IBB) debuted on 02/05/2001, and offers broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
IBB is managed by Blackrock, and this fund has amassed over $5.27 billion, which makes it one of the largest ETFs in the Health Care ETFs. This particular fund seeks to match the performance of the Nasdaq Biotechnology Index before fees and expenses.
The ICE Biotechnology Index contains securities of NASDAQ listed companies that are classified as either biotechnology or pharmaceuticals.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for IBB are 0.45%, which makes it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 0.33%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
IBB's heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.
Taking into account individual holdings, Amgen Inc (AMGN) accounts for about 8.64% of the fund's total assets, followed by Vertex Pharmaceuticals Inc (VRTX) and Gilead Sciences Inc (GILD).
Its top 10 holdings account for approximately 50.35% of IBB's total assets under management.
Performance and Risk
The ETF has lost about -10.82% so far this year and is down about -6.93% in the last one year (as of 04/17/2025). In the past 52-week period, it has traded between $112.02 and $149.47.
The ETF has a beta of 0.82 and standard deviation of 21.51% for the trailing three-year period, making it a high risk choice in the space. With about 266 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares Biotechnology ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
First Trust NYSE Arca Biotechnology ETF (FBT) tracks NYSE Arca Biotechnology Index and the SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index. First Trust NYSE Arca Biotechnology ETF has $989.05 million in assets, SPDR S&P Biotech ETF has $4.79 billion. FBT has an expense ratio of 0.56% and XBI charges 0.35%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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iShares Biotechnology ETF (IBB): ETF Research Reports Amgen Inc. (AMGN): Free Stock Analysis Report Gilead Sciences, Inc. (GILD): Free Stock Analysis Report Vertex Pharmaceuticals Incorporated (VRTX): Free Stock Analysis Report SPDR S&P Biotech ETF (XBI): ETF Research Reports First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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