In this article, we discuss 11 best biotech ETFs to buy. If you want to skip our discussion on the biotech industry, head over to 5 Best Biotech ETFs To Buy.
The new era in biotech is defined by the convergence of biology, data, and artificial intelligence. According to The Journal of mHealth, the focus is shifting towards enabling technologies like connected instruments, cloud-based applications, and AI tools, essential for understanding and engineering biology effectively. However, biotech faces unique challenges compared to traditional tech, including acquiring large-scale, standardized, and costly data necessary for AI/ML applications. Despite slower progress, AI/ML holds significant promise in revolutionizing therapeutics beyond discovery. Additionally, AI bots are increasingly assisting scientists in tasks like experimental planning and data analysis, which is transforming workflows. The biopharma industry is experiencing a surge in novel drug approvals, particularly in advanced modalities, signaling a strategic shift and the need for adaptable research tools and collaborative approaches. Moreover, community-driven initiatives are reshaping the biotech landscape, fostering knowledge sharing, attracting diverse talent, and driving digital transformation efforts.
The biotech industry is witnessing increased interest in leveraging AI technologies, with NVIDIA Corporation (NASDAQ:NVDA) recently making announcements regarding partnerships with Johnson & Johnson (NYSE:JNJ) to utilize generative AI in surgery and with GE HealthCare Technologies Inc. (NASDAQ:GEHC) to enhance medical imaging. Raj Joshi, a technology analyst and senior vice president at Moody’s Ratings, highlighted NVIDIA Corporation (NASDAQ:NVDA)’s pivotal role in providing essential technology for tasks previously difficult to achieve or requiring significantly more time and resources. He emphasized the potential of healthcare, including biotechnology, chemicals, and drug discovery, as a robust area for Nvidia’s growth. According to EY, about 41% of biotech CEOs expressed concrete interest in leveraging generative AI for their companies, indicating a rapid adoption of AI technologies in the industry. This eagerness to integrate AI into biotech operations is unprecedented, as per industry experts. Arda Ural, EY Americas health and life sciences industry market leader, commented:
“Over the last 18 months or so, we tend to believe it is more hope than hype because of the tangible outcomes and then the very compelling use cases of how AI helped with the pharmaceutical industry, medtech industry or biotech industry.”
GlobalData’s survey on the biopharmaceutical industry in 2024 indicates a significant level of optimism among healthcare professionals regarding the recovery of biotech funding this year. This follows a decline in private biotech venture financing in 2022 and 2023, attributed to macroeconomic factors. Currently, 607 venture-backed companies based in the US are impacted by the funding crunch, with more than 1500 drugs on the line, including those in preclinical stages. A considerable proportion of these companies have not raised any capital in the past few years. In 2021, venture financing for US-based companies with innovator drugs reached its peak, leading to many early-stage biotechs going public with inflated valuations. However, this resulted in overvalued biotechs failing to meet milestones, leading to a decline in investor confidence and selectivity in new investments. Biotechs are now exploring alternative funding sources, with 39% of survey respondents preferring enhanced industry partnerships as an effective measure to mitigate funding downturns. In the APAC region, respondents preferred government incentives or grants over private VC investors compared to North America and Europe. In the US, NIH grant funding to private companies saw a notable increase from 2021 to 2022, highlighting its significance in bridging the investment gap from venture capitals. Following a decline from record highs in 2021, venture capital funding has shown resilience in recent years, and signs now indicate a potential return to pre-pandemic levels.
To benefit from the growth potential in the biotech space, investors can invest in ETFs that expose them to top industry stocks like Eli Lilly and Company (NYSE:LLY), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), and Amgen Inc. (NASDAQ:AMGN).
Photo by National Cancer Institute on Unsplash
Our Methodology
We curated our list of the best biotech ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of April 2, 2024, ranking the list in ascending order of the share price performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.
Best Biotech ETFs To Buy
11. Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ)
5-Year Share Price Performance as of April 2: -13.80%
Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ) primarily invests in securities listed on the NASDAQ Exchange, focusing on biotechnology and pharmaceutical companies. It aims to track the performance of the Nasdaq Biotechnology Index. The fund was launched on June 21, 2021. As of March 28, 2024, Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ)’s portfolio included 219 stocks, and the fund featured an expense ratio of 0.19%. It is one of the best biotech ETFs to buy.
Amgen Inc. (NASDAQ:AMGN) is the largest holding of Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ). Amgen Inc. (NASDAQ:AMGN) is a global biopharmaceutical company specializing in the discovery, development, manufacturing, and delivery of human therapeutics. On March 6, the company declared a $2.25 per share quarterly dividend, in line with previous. The dividend is payable on June 7, to shareholders on record as of May 17.
According to Insider Monkey’s fourth quarter database, 69 hedge funds were bullish on Amgen Inc. (NASDAQ:AMGN), compared to 60 funds in the last quarter.
Aristotle Capital Value Equity Strategy made the following comment about Amgen Inc. (NASDAQ:AMGN) in its Q3 2023 investor letter:
“Amgen Inc. (NASDAQ:AMGN), the biopharmaceutical company, was the top contributor for the quarter. The company continues to leverage its innovative platform to strengthen its product portfolio, offset maturing products, such as Epogen and Neulasta, and increase market share. Over the past year, Amgen has reported double‐digit volume growth, operating margin expansion to over 40% and record levels of sales for cholesterol drug Repatha, bone‐strengthening drug Prolia and cancer drug Blincyto. Additionally, the company remains well positioned to benefit from the continued development and commercialization of biosimilars such as Amgevita, the first biosimilar to Humira, and the successful integration of Otezla to bolster its inflammation segment. Lastly, the FTC agreed to allow Amgen to proceed with its $27.8 billion acquisition of Horizon Therapeutics. We note that this is yet another unsuccessful attempt by the FTC to block an M&A transaction of one of our holdings (see below re: Activision Blizzard). The transaction closed on October 6, 2023 and brings expertise in rare disease therapies (including bulging eye‐drug Tepezza), as well as adds to Amgen’s immunology portfolio.”
10. First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT)
5-Year Share Price Performance as of April 2: -0.48%
First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT) aims to mirror the performance of the NYSE Arca Biotechnology Index. The index includes companies in two sub-industries – Biotech Therapeutics, focused on therapeutic treatments, and Biotech Tools & Diagnostics, focused on tools and processes supporting biotechnology practices. First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT) is one of the best biotech ETFs to invest in. The ETF was established on June 19, 2006. Its portfolio consists of 30 stocks and the fund offers an expense ratio of 0.56%. As of April 1, 2024, First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT)’s total assets amounted to $1.17 billion.
Natera, Inc. (NASDAQ:NTRA) is the largest holding of First Trust NYSE Arca Biotechnology Index Fund (NYSE:FBT). Natera, Inc. (NASDAQ:NTRA) is a global diagnostics company that develops and sells molecular testing services. On February 28, Natera reported a Q4 GAAP EPS of -$0.65 and a revenue of $311.1 million, outperforming Wall Street estimates by $0.06 and $23.78 million, respectively.
According to Insider Monkey’s fourth quarter database, 50 hedge funds were long Natera, Inc. (NASDAQ:NTRA), compared to 49 funds in the last quarter.
In addition to Eli Lilly and Company (NYSE:LLY), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), and Amgen Inc. (NASDAQ:AMGN), Natera, Inc. (NASDAQ:NTRA) is one of the best biotech ETFs to invest in.
NCG SMID Cap Growth Strategy stated the following regarding Natera, Inc. (NASDAQ:NTRA) in its fourth quarter 2023 investor letter:
“Natera, Inc. (NASDAQ:NTRA) is a leader in cell-free DNA diagnostics, primarily dedicated to oncology, women’s health, and organ health. Their goal is making personalized genetic testing and diagnosis part of the standard of care to drive earlier and targeted interventions to improve patient outcomes. NTRA has developed a leadership position with tests like Signatera in oncology, Panaroma for NIPT (non-invasive prenatal testing), and Prospera for organ transplant assessment. Signatera addresses a newer area of oncology testing called MRD (minimum residual disease), which is experiencing significant growth and in which NTRA has an early mover advantage. After years of heavy investment to drive revenue growth, NTRA continues to deliver solid topline growth and is now on the cusp of being cash flow positive.”
9. SPDR S&P Biotech ETF (NYSE:XBI)
5-Year Share Price Performance as of April 2: 0.05%
SPDR S&P Biotech ETF (NYSE:XBI) aims to replicate the performance of the S&P Biotechnology Select Industry Index before fees and expenses. It offers exposure to the biotechnology sector of the S&P Total Market Index. The ETF provides diversified exposure across large, mid, and small-cap stocks within the biotechnology sector. It is one of the best biotech ETFs. As of April 1, 2024, SPDR S&P Biotech ETF (NYSE:XBI) held $7,492.98 million in assets under management, and featured a gross expense ratio of 0.35%. Its portfolio consists of 133 stocks.
Exact Sciences Corporation (NASDAQ:EXAS) is the largest holding of SPDR S&P Biotech ETF (NYSE:XBI). Exact Sciences Corporation (NASDAQ:EXAS) specializes in cancer screening and diagnostic test products. On February 21, the company reported a Q4 GAAP EPS of -$0.27 and a revenue of $647 million, outperforming Wall Street estimates by $0.21 and $7.3 million, respectively.
According to Insider Monkey’s fourth quarter database, 39 hedge funds were bullish on Exact Sciences Corporation (NASDAQ:EXAS), compared to 45 funds in the last quarter.
Artisan Small Cap Fund made the following comment about Exact Sciences Corporation (NASDAQ:EXAS) in its Q3 2023 investor letter:
“Among our top detractors were Lattice Semiconductor, Shockwave and Exact Sciences Corporation (NASDAQ:EXAS). Exact Sciences is a leading provider of diagnostic testing and maker of the noninvasive colorectal cancer screening test Cologuard®. The stock was a top performer through the first half of the year but pulled back in Q3. The company reported strong financial results as 31% growth in screening revenues (mostly Cologuard®) drove an overall 19% revenue increase. However, screening revenues fell slightly short of elevated expectations and were not good enough to support the stock’s year-to-date outperformance. We continue to be bullish on Cologuard’s® long-term growth potential; the addressable market expanded significantly in 2021 when the United States Preventive Services Task Force lowered the recommended age for colorectal cancer screenings to 45 from 50. Our research indicates the lowered screening age expands the company’s addressable market by ~18 million unscreened individuals. We also believe meaningful long[1]term opportunities exist as the company develops additional high-value cancer tests.”
8. Tema Oncology ETF (NASDAQ:CANC)
5-Year Share Price Performance as of April 2: 13.52%
Ranking 8th on our list of the best biotech ETFs is Tema Oncology ETF (NASDAQ:CANC). Tema Oncology ETF (NASDAQ:CANC) is an actively managed fund aiming for long-term growth by investing in oncology companies. The fund was established on August 14, 2023. As of April 1, 2024, the ETF’s expense ratio came in at 0.75% and its portfolio consists of 49 stocks, along with assets under management of nearly $19 million. Tema Oncology ETF (NASDAQ:CANC) is one of the best biotech ETFs to buy.
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is the top holding of Tema Oncology ETF (NASDAQ:CANC). Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is a global biopharmaceutical company focused on discovering, inventing, developing, manufacturing, and commercializing medicines for multiple diseases. On February 2, the company reported a Q4 non-GAAP EPS of $11.86 and a revenue of $3.43 billion, outperforming Wall Street estimates by $1.11 and $140 million, respectively.
According to Insider Monkey’s fourth quarter database, 59 hedge funds were bullish on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), compared to 50 funds in the prior quarter.
Bronte Capital Amalthea Fund made the following comment about Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) in its Q3 2023 investor letter:
“In the last quarterly letter, we discussed the problems in our long book. These were:
- a) companies that sell technical products to improve the conversion of grain into meat (such as animal genetics and feed additives), and
- b) Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), which had received a “Complete Response Letter” (an FDA rejection) for their new longer-lasting wet age-related macular degeneration drug.
The first of these problems has persisted. Grain prices remain high relative to meat prices and the stocks in question have followed their quality European peers down. The two losers in this sector are Genus and DSM-Firmenich…” (Click here to read the full text)
7. Invesco Biotechnology & Genome ETF (NYSE:PBE)
5-Year Share Price Performance as of April 2: 14.50%
Invesco Biotechnology & Genome ETF (NYSE:PBE) is based on the Dynamic Biotech & Genome Intellidex Index. The index consists of 30 US biotechnology and genome companies primarily involved in research, development, manufacturing, marketing, and distribution of biotechnological products and services. As of April 1, 2024, Invesco Biotechnology & Genome ETF (NYSE:PBE)’s total expense ratio stood at 0.58%, and its portfolio had 32 stocks. The fund was established on June 23, 2005. Invesco Biotechnology & Genome ETF (NYSE:PBE) ranks 7th on our list of the best biotech ETFs.
Neurocrine Biosciences, Inc. (NYSE:NBIX) is the largest holding of the Invesco Biotechnology & Genome ETF (NYSE:PBE). Neurocrine Biosciences, Inc. (NYSE:NBIX) is a pharmaceutical company focused on discovering, developing, and marketing treatments for neurological, neuroendocrine, and neuropsychiatric disorders globally. On February 7, the company reported a Q4 non-GAAP EPS of $1.54, beating market estimates by $0.03, and a revenue of $515.2 million, missing Street expectations by $3.19 million.
According to Insider Monkey’s fourth quarter database, 55 hedge funds were bullish on Neurocrine Biosciences, Inc. (NYSE:NBIX), same as the prior quarter.
Harding Loevner Global Small Companies Equity Strategy made the following comment about Neurocrine Biosciences, Inc. (NASDAQ:NBIX) in its Q3 2023 investor letter:
“By sector, our returns in Health Care were positive but this was more than offset by poor Industrials stocks. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) reported positive late-stage clinical study data for its treatment of congenital adrenal hyperplasia, a condition which causes the body to not produce enough cortisol, increasing the probability that the company can address a new estimated $1 billion market opportunity.”
6. iShares Biotechnology ETF (NASDAQ:IBB)
5-Year Share Price Performance as of April 2: 19.04%
iShares Biotechnology ETF (NASDAQ:IBB) aims to mirror the investment performance of the NYSE Biotechnology Index, which comprises American equities in the biotechnology sector. As of April 2, 2024, the fund holds $7.4 billion in net assets, and its portfolio consists of 219 stocks. Its expense ratio came in at 0.45%. iShares Biotechnology ETF (NASDAQ:IBB) is one of the best biotech ETFs to buy.
Gilead Sciences, Inc. (NASDAQ:GILD) is one of the top holdings of the iShares Biotechnology ETF (NASDAQ:IBB). Gilead Sciences, Inc. (NASDAQ:GILD) is a biopharmaceutical company focused on discovering, developing, and commercializing medicines worldwide. On March 28, the approval from the US FDA was extended to include Gilead Sciences, Inc. (NASDAQ:GILD)’s Vemlidy for treating hepatitis B virus in children aged six and above. This daily medication is now suitable for children weighing at least 25 kg with compensated liver disease, with the expansion based on evidence from phase 2 placebo-controlled trials.
According to Insider Monkey’s fourth quarter database, 55 hedge funds were bullish on Gilead Sciences, Inc. (NASDAQ:GILD), same as the prior quarter.
Like Eli Lilly and Company (NYSE:LLY), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), and Amgen Inc. (NASDAQ:AMGN), Gilead Sciences, Inc. (NASDAQ:GILD) is one of the top biotech plays to consider.
In its fourth quarter 2023 investor letter, ClearBridge Dividend Strategy stated the following regarding Gilead Sciences, Inc. (NASDAQ:GILD):
“In the second half of 2023 — as we were selling low-growth, high-multiple stocks and taking advantage of oversold conditions in infrastructure, real estate and utilities — we also found opportunities in overlooked areas of health care. After adding Gilead Sciences, Inc. (NASDAQ:GILD) in the third quarter, we bought AstraZeneca in the fourth quarter. Each of these stocks present distinct investment cases, but both are reasonably valued and have limited patent expiry or pipeline risk. Gilead’s strength comes from its dominant franchise in HIV. It offers lower growth, but it yields nearly 4% and trades at 11x earnings. AstraZeneca possesses a diversified portfolio of pharmaceuticals, which should deliver double-digit earnings growth, yet it trades at just 16x earnings. These stocks were underwritten individually, but collectively we like the idea of increasing our exposure to defensive and growing health care names at below-market multiples.”
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Disclosure: None. 11 Best Biotech ETFs To Buy is originally published on Insider Monkey.
