“Biotechnology” is a term commonly applied to the development of new medicines and therapies, the development of genetically modified plants, biofuels, biological treatment, or the production of chemicals, paper, textiles, and food. The field of biotechnology is applied to many diverse disciplines, such as medicine, agriculture, and industry. There has been a rise in demand for biotechnology applications and products, and the trend only shows signs of accelerating from here. The outbreak of the coronavirus pandemic, obviously, spurred the demand for vaccines, diagnostic tests, and drugs. In addition, biotechnology is expected to help solve issues surrounding chronic diseases, which will continue to be the leading cause of death and disability worldwide. The global biotechnology market, which stood at $627.63 billion in 2020, is expected to grow at a CAGR of 8.57% during 2021-2026.
Here’s an overview of the leading biotechnology indices in the U.S., as well as ETFs to invest in them.
Nasdaq Biotechnology Index (NBI)
Launched in 1993, the Nasdaq Biotechnology Index uses a modified capitalization-weighted methodology composed of securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark (ICB) as either biotechnology or pharmaceuticals, which also meet other eligibility criteria. The index is a modified market capitalization weight, so that constituents are capped at 8% (for the top 5) and at 4% (for the remaining) at each quarterly index rebalance. One of the most interesting aspects of NBI’s composition stems from its subsector classifications, namely, the split between biotechnology and pharmaceuticals. ICB currently classifies 230 companies as biotechnology, and the remaining 44 as pharmaceuticals. The resulting split by index weight is approximately 65% and 35%, respectively.
The top ten constituents currently add to around 46.67% and include:
The index is tracked by the Invesco Nasdaq Biotechnology Index (IBBQ). Some of the other ETFs currently tracking NBI are:
- ProShares Ultra Nasdaq Biotechnology ETF (BIB)
- ProShares UltraShort Nasdaq Biotechnology ETF (BIS)
- Invesco Nasdaq Biotech UCITS ETF
- iShares Nasdaq US Biotechnology UCITS ETF
- Tachlit Nasdaq Biotechnology ILS
- Capital Nasdaq Biotechnology Index ETF
- Mirae Asset TIGER Nasdaq BIO ETF
S&P Biotechnology Select Industry Index
The S&P Biotechnology Select Industry Index was launched in January 2006. It offers a pure play biotech exposure, and follows a modified equal-weighting approach to provide the potential for unconcentrated industry exposure across large-, mid-, and small-cap stocks. The S&P Biotechnology Select Industry represents the biotechnology segment of the S&P Total Market Index. The index is modified equal-weighted wherein each constituent has an equal weightage. The index has 186 constituents with the top ten holdings having a 11.8% allocation.
- ChemoCentrynx (CCXI)
- Dicerna Pharmaceuticals (DRNA)
- Seres Therapeutics (MCRB)
- Cytokinetics (CYTK)
- Apellis Pharmaceuticals (APLS)
- ACADIA Pharmaceuticals (ACAD)
- Ligand Pharmaceuticals (LGND)
- Arcus Biosciences (RCUS)
- Avid Bioservices (CDMO)
- BioMarin Pharmaceuticals (BMRN)
SPDR S&P Biotech ETF (XBI) is among the prominent ETFs tracking the index. In addition, it is tracked by the following:
- Direxion Daily S&P Biotech Bear 3X ETF (LABD)
- Direxion Daily S&P Biotech Bull 3X ETF (LABU)
- ETFS S&P Biotech ETF
- KODEX US S&P Bio (Synth)
NYSE Arca Biotechnology Index (BTK)
Next in line is the NYSE Arca Biotechnology Index. The index was launched in 1992. It constitutes the top 30 large-cap biotech companies and weights them equally. The index is designed to reflect the performance of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.
- Acadia Pharmaceuticals (ALPS)
- FibroGen (FGEN)
- Vertex Pharmaceuticals (VRTX)
- BioNTech (BNTX)
- BioMarin Pharmaceuticals (BMRN)
- Regeneron Pharmaceuticals (REGN)
- Incyte (INCY)
- IQVIA Holdings (IQV)
- Amgen (AMGN)
- Gilead Sciences (GILD)
The index is tracked by the First TrustNYSE Arca Biotechnology Index (FBT).
ICE Biotechnology Index
The ICE Biotechnology Index is a rules-based, modified float-adjusted market capitalization-weighted index that tracks the performance of qualifying U.S. listed biotechnology companies. The index was launched in 2012 and includes companies that are engaged in the research and development of therapeutic treatments but are not focused on the commercialization and mass production of pharmaceutical drugs. In addition, companies that are engaged in the production of tools or systems that enable biotechnology processes are included. The top ten holdings have a 48.69% allocation.
- Amgen (AMGN)
- Gilead Sciences (GILD)
- Moderna (MRNA)
- Regeneron Pharmaceuticals (REGN)
- Illumina (ILMN)
- Vertex Pharmaceuticals (VRTX)
- IQVIA Holdings (IQV)
- BioNTech (BNTX)
- Mettler-Toledo International (MTD)
- Biogen (BIIB)
The index is tracked by the iShares Biotechnology Index (IBB).
Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in reporting are unintentional. The data is as of December 20, 2021, based on index data.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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