Investing in Biotech Guide - Stocks, ETFs, Indices
Many biotech companies are at the forefront of medical breakthroughs. While biotech stocks can be notoriously volatile, other options to invest in biotech include biotech ETFs and indices. Learn more in this 'Investing in Biotech Guide.'
Table of Contents
What is Biotech
What is biotech? Biotech is short for biotechnology and refers to the technology that uses biological systems such as living organisms to develop different products. It is the combination of natural sciences and engineering coming together. Biotech companies use biotechnology to develop drugs, vaccines and other products to try and improve human health.
How to Invest in Biotech
There are a few different options for investing in biotech. These include investing in biotech companies or a biotech ETF.
Biotech ETFs
An ETF is an exchange-traded fund which invests in a basket of securities that track a certain theme. For example, a biotech ETF is a fund which will invest in a basket of stocks that are in the biotechnology sector. Some well-known biotech ETFs include the:
- SPDR S&P Biotech ETF
- VanEck Vectors Biotech ETF
- First Trust NYSE Arca Biotechnology Index Fund ETF
- iShares Nasdaq Biotechnology ETF
Each biotech ETF has an aim to track a biotech index which measures the performance of the biotech sector. One of the most popular biotech indices that ETF fund managers follow is the Nasdaq Biotechnology Index.
What is the Nasdaq Biotechnology Index
The Nasdaq Biotechnology Index, often referred to as the NBI Index, is a market capitalisation-weighted index designed to reflect the performance of all the biotechnology stocks listed on the NASDAQ Stock Exchange. Created and first traded on 1 November 1993, the index’s initial base value was 200.
The Nasdaq Biotechnology Index consists of Nasdaq-listed companies that operate in the biotechnology industry as classified by the Industry Classification Benchmark.
The Nasdaq Biotech Index is used as a benchmark for the performance of the biotech sector. It does this by providing showing the performance of all the biotech stocks listed on the NASDAQ Stock Exchange. The top 10 biotech companies in the index include:
- Amgen
- Gilead Sciences
- Moderna
- Regeneron Pharmaceuticals
- Illumina
- Vertex Pharmaceuticals
- AstraZeneca
- Biogen
- Seagen
- Horizon Therapeutics.
While some investors may consider investing in biotech stocks individually that involves analysing each company's fundamentals and upcoming clinical trials to identify a solid biotech company to invest in. Other investors, will choose to invest in an ETF that tracks the Nasdaq Biotech Index to receive the performance of the biotech sector as a whole.
Conclusion
Biotech companies are notoriously volatile. They can move higher or lower very quickly on good or bad news regarding clinical trials of any new products. Some investors may prefer to take a more diversified approach and invest in the biotech sector as a whole. This can be done by investing in ETFs that track the Nasdaq Biotechnology Index. As the index is comprised of the performance of hundreds of biotech companies, each fund provider will invest in each biotech company with the same weighting to try and track the index's performance.
Investors can trade a biotech ETF just like a stock as it is a standalone security listed on a stock exchange. With Admirals, you can invest in US stocks and ETFs with a commission from $0.02 per share and a low minimum transaction fee of just $1.
Continue Reading:
- Top 5 Biotech Stocks
- 6 Top Healthcare Stocks
- 11 Sectors of the Stock Market
- What are ETFs?
- How to Build an Investing Portfolio
FAQs on Investing in Biotech
Is it good to invest in biotech?
Currently, the biotech sector is valued at more than $1.4 trillion. While there is the potential for more growth in the biotech sector, biotech stocks are much more volatile than blue chip stocks.
Is investing in biotech risky?
Every form of investment comes with risk as no one can predict the future. Biotech stocks are also known to be very volatile so may not be suited for all investors. A biotech ETF may provide a more diversified and balanced option to receive the performance of the overall biotech sector.
How can I invest in biotech?
Some of the options to invest in biotech include investing in biotech stocks or biotech ETFs. Biotech stocks are companies involved in the biotechnology sector. A biotech ETF is a fund which will invest in a basket of biotech companies and will usually try to track an index such as the Nasdaq Biotech Index.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
