Biotech ETF – a primer
Categorized: ETF | 1 comment
How to Choose a Biotech ETF?
Biotech ETF trading involves trading shares spread across the biotechnology sector. Biotechnology is the combination of biology and technology, such as gene research, vaccines, plant hybrids and any type of biological and technological process mixing. While biotech stocks dipped in the beginning of the recession like everything else across the board, 2010 has seen them surge back up, with one ETF, the First Trust NYSE Arca Biotechnology ETF (FBT), shooting up over 30% by April.
It seems biotech is the index to watch for the potential to gain and profit. But as with all ETFs, it’s important to look at how the investment is spread over the index to help you decide which particular biotech ETF is the right one to invest in. And understanding how biotech loses and gains value can help you decide if investing in the industry is something you want to do.
What Biotech ETFs Rely On?
Biotechnology is a little like book publishing. Publishing houses print dozens, hundreds and sometimes thousands of new titles each year knowing that most of them will actually lose money. They rely on those few big hits that become bestsellers to make up the losses of the other books and turn a profit. Biotechnology, as it’s heavily reliant on time-consuming research and following paths that prove fruitless in the name of that research, operates in a similar way.
A pharmaceutical company may work toward the development of 50 new drugs and only be able to bring a few of them to the marketplace in the end because the others didn’t work, were dangerous, or failed in some way. So the few big “hits” keep them afloat. That can make for volatile investing, especially if there are no big hits and there are things like drug recalls and other publicly negative news.
Choose from Six Biotech ETFS
Thanks to a number of expiring patents in 2010, the biotech industry is going to change, possibly in major ways. Before you choose which of the six ETFs you want to invest in, you need to look at the companies represented by each one and do a little research.
When a company approves a new drug or even just has a good result on a study of a drug that they’re planning to bring to the marketplace, stocks surge. Recalls, failed studies and fruitless research cause the value to drop. Before you buy that biotech ETF, check into the companies that are represented and what they have on the horizon. That could help you get in low and ride the fund to a huge and exciting profit.
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[...] of all, if you want to feel any sort of confidence about your particular biotech ETF, and currently there are 6 to choose from, then you should watch the market for a while first and [...]
on September 5, 2010 at 1:32 pm