Presenting a Pure Play on the Booming Biotech Industry

This article is the fourth in a series exploring equal-weight ETFs

The SPDR S&P Biotech ETF (NYSEARCA:XBI) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index.

The exchange-traded fund (ETF) seeks to provide exposure to the Biotechnology segment of the S&P TMI, which comprises Biotechnology sub-industries that combine to track a modified equal-weighted index. The ETF offers the potential for unconcentrated industry exposure across large-, mid- and small-cap stocks.

Since the fund equal-weights its portfolio, it in turn emphasizes small- and micro-caps and greatly reduces single-name risk. Thus, the weighted-average market cap is much smaller than some competitors’.

Unlike other funds in this segment, XBI is a pure biotech play, with relatively small pharma overlap. The index is rebalanced quarterly. Plus, the fund allows investors to take strategic or tactical positions at a more targeted level than traditional sector-based investing.

XBI trades around $124 a share and has a 0.24% dividend yield. It also has a 0.2% average spread, 189 holdings and a 0.35% expense ratio, meaning it is relatively inexpensive to hold in comparison to other exchange-traded funds.

Source: StockCharts.com

Although XBI’s share price has been in a bit of a slump, this gives potential investors a great opportunity to buy shares in this hot ETF at a discounted price.

However, as with any opportunity, I urge all potential investors to exercise their own due diligence in deciding whether this fund fits their own individual portfolio goals.

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Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.