Guide to Choosing a Biotech ETF

Investors are being provided with vast opportunities for exposure in the exchange traded funds (ETF) industry due to continuous innovations. The exposure being gained by investors in the ETF has been far better than ever due to exchange-traded products. Sectors in both domestic and global economies are being narrowed down and multiplied in amounts due to diversified ETFs including funds, which target insurance, gaming, gold mining, food and beverage, and airline industries.

In fact, the expansion of ETFs has led investors to exposure on biotech ETF. A number of options and opportunities for achieving exposure on biotech ETF are being provided to investors including State Street, iShares, First Trust, and PowerShares among others.

The exchange traded funds (ETF) industry is leading investors to the presence of the biotech funds mentioned. This indicates over-saturation of the ETF industry. On the other hand, these biotech ETFs have been the same in most ways including considerable overlap in holdings.

Consequently, biotech ETF can be affected by a variety of price drivers and factors, which include takeover activity, new product pipeline, and regulatory environment.

Takeover activity – The biotech sector has been a merger and acquisition process. This is due to larger firms seeking to snap up smaller firms with unproven product pipelines although this tends to be quite promising for the smaller firms. Biotech funds have obtained a huge push as Bristol-Myers Squibb Co. announced its plans to acquire Medarex at a premium, which is close to 90%. Medarex is a specialist in antibody technology.

New Product Pipeline – Most biotech companies tend to invest heavily in the research and development of their products, which often prove to be a failure commercially. In some cases, their products would not make it to the markets. Thus, the biotech industry relies on home run products, which lead to substantial earnings and revenue.

Regulatory environment – The biotech industry has depended largely on protection of its intellectual property rights and patents. This is to the extent that new regulation shifting other existing patent laws is passed. Consequently, the future of the biotech industry can be changed dramatically.