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For investors who find the biotech industry intriguing and want to secure a means for diversified investments within biotech that avoid the risk of simply selecting a single company while also avoiding the intensive due diligence required to manual diversify should consider a biotech-focused ETF like the IBB.
The largest US-traded biotech ETF is IBB. As of Sep. 06, 2016, it has total assets of around $7,446 million. IBB is overseen by BlackRock Fund Advisors and comes with an expense ratio of .48%. The fund was issued on Feb. 09, 2001. Its primary benchmark is the NASDAQ Biotechnology Index and IBB focuses its assets on firms performing biomedical research in hopes to discover and/or develop innovative treatments and new cures for diseases that threaten humanity.
The fund’s liquidity is high, which makes it an easy option for investors to increase positions as well as exit. One caveat: the fund only trades in NASDAQ-listed stocks. This means it does not provide access to a significant subsector within the biotech market that includes a number of potentially strong biotech startups that are traded on the NYSE. Nevertheless, this is a solid fund weighted in favor of larger-cap companies that has proven to be a valuable vehicle for many investors building wealth through long-term investments in biotech. (For more, see: Top 3 Biotech ETFs.)
Total Returns Since Inception
According to BlackRock, as of Aug. 31, 2016, IBB features an average annual total return of 7.00% (represents changes to the NAV) since its inception in February 2001. Over the past ten years, IBB exhibits an average annual total return of 14.51% and over the past five years of 24.10%. In particular, over the last six years (2010 until 2015), the ETF has performed highly positive:
After such a positive performance run over the past six years, the current year-to-date total return in 2016 is negative at -15.93%, as of Sep. 06, 2016.
The Bottom Line
A highly liquid exchange-traded fund option for investors who seek to increase exposure to US biotechnology stocks. Of course, prior to a final decision on investing, the proper due diligence and risk tolerance assessments that all investors should undertake must be performed with the IBB ETF.