News

Making its debut on 06/23/2005, smart beta exchange traded fund Invesco Biotechnology & Genome ETF (PBE) provides investors broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

PBE is managed by Invesco, and this fund has amassed over $259.21 million, which makes it one of the average sized ETFs in the Health Care ETFs. PBE, before fees and expenses, seeks to match the performance of the Dynamic Biotechnology & Genome Intellidex Index.

The Dynamic Biotech & Genome Intellidex Index seeks to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action, and value.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Operating expenses on an annual basis are 0.58% for this ETF, which makes it on par with most peer products in the space.

PBE's 12-month trailing dividend yield is 0.06%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For PBE, it has heaviest allocation in the Healthcare sector --about 100% of the portfolio.

When you look at individual holdings, Neurocrine Biosciences Inc (NBIX) accounts for about 5.26% of the fund's total assets, followed by Regeneron Pharmaceuticals Inc (REGN) and Gilead Sciences Inc (GILD).

The top 10 holdings account for about 46.62% of total assets under management.

Performance and Risk

Year-to-date, the Invesco Biotechnology & Genome ETF has lost about -2.65% so far, and it's up approximately 2.59% over the last 12 months (as of 05/10/2024). PBE has traded between $52.52 and $67.29 in this past 52-week period.

The ETF has a beta of 0.83 and standard deviation of 23.82% for the trailing three-year period, making it a high risk choice in the space. With about 32 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Biotechnology & Genome 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.

SPDR S&P Biotech ETF (XBI) tracks S&P Biotechnology Select Industry Index and the iShares Biotechnology ETF (IBB) tracks Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $6.69 billion in assets, iShares Biotechnology ETF has $7.10 billion. XBI has an expense ratio of 0.35% and IBB charges 0.45%.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.