How to Invest in Biotech Stocks and ETFs?

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Biotech is one of the most innovative industries out there. From 2012 to 2022, thanks to the innovation boom like the Human Genome Project and ultra-low interest rates, biotech stocks have significantly outperformed $S&P 500(.SPX)$ . And now, with interest rate cuts looming, biotech stocks and ETFs are poised for an unmissable investment opportunity.

According to Grand View Research, the global biotech market will grow to $3.88 trillion at a compound annual growth rate (CAGR) of 13.96% during the period 2024-2030.

In addition, Verified Market Research expects the size of the global biotech market to exceed $5.25 trillion by 2030.

As for the nano-medicine segment, Precendence Research forecasts it'll grow to $183.11 billion with an 8.13% CAGR over 2023-2032.

How to Invest in Biotech Stocks?

In a nutshell, biotech companies are all about taking risks, while the pharmaceutical industry focuses more on risk management and diversification. Plus, biotech companies usually have much smaller revenues compared to their pharmaceutical counterparts.

So, if you're eyeing biotech stocks, you need to ask:

1. how are the clinical trial results?

2. Are the drugs safe and effective?

3. Will they get approved and hit the market?

All these crucial questions that determine stock prices and even the survival of companies are in the hands of the FDA. Also, larger and more mature companies pose less risk than newer ones still in clinical trials.

How to Invest in Biotech ETFs?

For biotech ETFs, there are indices like the S&P Biotech Select Industry Index, the NYSE Arca Biotechnology Index, and the NASDAQ Biotechnology Index.

The top-ranked biotech ETF by asset size is the $Spdr S&P Biotech Etf(XBI)$ , tracking 137 holdings. Its top three holdings are $Crinetics Pharmaceuticals Inc.(CRNX)$ , $Exelixis(EXEL)$ , and $Dyne Therapeutics, Inc.(DYN)$ .

The second-largest biotech ETF is the $iShares Biotechnology ETF(IBB)$ , which started in February 2001 and tracks 218 holdings. Its top three holdings are $Gilead Sciences(GILD)$ , $Amgen(AMGN)$ , and $Regeneron Pharmaceuticals(REGN)$ , with weights around 8% each.

Besides these biggies, there are also some small but mighty ETFs worth considering, like the $Global X Genomics & Biotechnology ETF(GNOM)$ , $ProShares Ultra Nasdaq Biotechnology(BIB)$ , $TEMA CARDIOVASCULAR AND METABOLIC ETF(HRTS)$ , $Principal Healthcare Innovators ETF(BTEC)$ , and $Range Cancer Therapeutics ETF(CNCR)$ .

These five biotech ETFs all have AUMs below $100 million, but they could be hidden gems!