Want to invest in an exciting and fast-growing sector? Biotech offers an opportunity to do so. Hundreds of biotech companies are hard at work developing innovative therapies. Some could even be game changers in preventing and treating diseases. Biotech exchange-traded funds (ETFs) own the stocks of companies that focus on the biotech sector.
You could buy individual biotech stocks. The downside to that, though, is that many of them are very risky. Biotech ETFs allow you to lower your risk level and portfolio volatility.
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Understanding biotech ETFs
Understanding biotech ETFs
ETFs are similar to mutual funds in that they can own lots of stocks (and sometimes other assets). Mutual funds, however, are only priced once per day, and you can only buy mutual funds through a brokerage or directly from the issuer.
On the other hand, ETFs trade on public exchanges just like individual stocks. And, like a stock, you can instantly buy or sell an ETF.
Investing in an ETF comes with a cost beyond just the transaction charge that a brokerage might require. The funds charge fees to cover their operating costs. The expense ratio of an ETF is calculated by dividing the fund’s operating expenses by its average assets.
Biotech ETFs have all the characteristics of ETFs in general. The key difference is that these ETFs hold only the stocks of companies that focus on biotechnology.
Best biotech ETFs
Best biotech ETFs in 2025
The best biotech ETFs tend to be the biggest ones. They have large amounts of assets under management and relatively low expense ratios. Here are five of the best biotech ETFs.
ETFs 1 – 2
1. iShares Biotechnology ETF
- Total assets: $5.8 billion
- Expense ratio: 0.44%
- Dividend yield: 0.28%
The iShares Biotechnology ETF (IBB 0.92%) attempts to track the results of an index that includes all U.S.-listed stocks in the biotechnology sector. The ETF currently owns around 251 biotech stocks.
Among the iShares Biotechnology ETF’s top holdings are some of the biggest biotech stocks based on market capitalization rank. They include Gilead Sciences (GILD 1.93%), Amgen (AMGN 0.19%), Regeneron Pharmaceuticals (REGN 0.03%), Vertex Pharmaceuticals (VRTX -1.4%), and Alnylam Pharmaceuticals (ALNY -1.11%).
Since its inception in 2001, the ETF has delivered an average annualized total return of 5.81%. Over the past five years, it has generated an annualized total return of negative 1.29%.
2. SPDR S&P Biotech ETF
- Total assets: $5.6 billion
- Expense ratio: 0.35%
- Dividend yield: 0.05%
The SPDR S&P Biotech ETF (XBI 0.98%) seeks to track the S&P Biotechnology Select Industry Index. The index uses a modified equal weighting, which means the percentage of total assets for each stock owned is roughly the same. It gives investors exposure to large-cap, mid-cap, and small-cap biotech stocks.
The ETF currently owns around 121 stocks. Its top holdings include Alnylam Pharmaceuticals, Insmed (INSM 2.85%), United Therapeutics (UTHR 1.97%), Halozyme Therapeutics (HALO -3.78%), and Incyte (INCY 0.69%). However, because of its modified equal weighting, none of the largest positions in the ETF make up a significantly greater percentage of assets than other stocks.
The SPDR S&P Biotech ETF has delivered a total annualized return of about 9.3% since its inception in 2006. Over the past five years, however, the ETF generated an average annual return of negative 4.19%.
ETFs 3 – 5
3. Ark Genomic Revolution ETF
- Total assets: $1.03 billion
- Expense ratio: 0.75%
- Dividend yield: 0%
The Ark Genomic Revolution ETF (ARKG 0.77%) is one of several exchange-traded funds operated by Cathie Wood’s Ark Invest. The fund invests in the stocks of companies that incorporate genomics into their businesses. It concentrates on gene-editing stocks, molecular diagnostics stocks, virtual care stocks, and the stocks of companies developing targeted therapeutics.
The ETF typically owns between 40 and 60 stocks. Its current top positions include Tempus AI (TEM 2.64%), CRISPR Therapeutics (CRSP -6.98%), Twist Bioscience (TWST 1.27%), Recursion Pharmaceuticals (RXRX -0.54%), and Natera (NTRA 4.51%).
The Ark Genomic Revolution ETF began trading in 2014. Since then, it has generated an average annual return of around 2.6%. Over the past five years, the ETF’s annualized return has been a negative 13.9%.
4. First Trust NYSE Arca Biotechnology Index Fund
- Total assets: $1.09 billion
- Expense ratio: 0.54%
- Dividend yield: 0%
The First Trust NYSE Arca Biotechnology Index Fund (FBT 1.13%) seeks to track the performance of the NYSE Arca Biotechnology Index. The index owns equal weights of the stocks of a cross-section of biotech companies, including those focused on genomics and developing monoclonal antibody-based technologies.
The ETF currently has about 30 positions. Its top holdings include Alnylam Pharmaceuticals, United Therapeutics, Argenx SE (ARGX 1.05%), Halozyme Therapeutics, and BeOne Medicines Ltd. (ONC -0.32%).
Since the ETF’s inception in 2006, it has achieved an average annual total return of 11.99%. Over the past five years, the fund generated an annualized return of 1.55%.
5. VanEck Biotech ETF
- Total assets: $356.9 million
- Expense ratio: 0.35%
- Dividend yield: 0.53%
The VanEck Biotech ETF (BBH 0.89%) tries to own the most liquid biotech companies based on market cap and trading volume. As such, its approach tends to favor the biggest companies in the biotech sector. The ETF’s portfolio can include U.S. companies, as well as foreign companies listed on U.S. stock exchanges.
The ETF currently owns 25 biotech stocks. Its top holdings include Amgen, Gilead Sciences, Vertex Pharmaceuticals, Alnylam Pharmaceuticals, and Argenx.
The VanEck Biotech ETF was launched on Dec. 20, 2011. Since then, the fund has generated an annualized total return of about 12.3%. Over the past five years, the ETF’s average annual return was close to 1%.
Related investing topics
Benefits and risks of investing in biotech ETFs
Benefits and risks of investing in biotech ETFs
The benefits of investing in biotech ETFs include:
- Diversification. Biotech ETFs own many biotech stocks. This reduces the risk of one big loser dragging down your returns.
- Professional management. The biotech industry is complicated. Investing in biotech ETFs gives you access to professional managers who know the industry well.
- Liquidity. Some individual biotech stocks aren’t heavily traded. To sell these stocks quickly, you might have to accept a lower price. The larger biotech ETFs allow you to avoid this liquidity risk.
However, there are also several potential risks associated with investing in biotech ETFs, such as:
- Overexposure to one sector. If you invest too heavily in biotech ETFs, your overall returns could be lower during periods when biotech stocks are out of favor.
- Volatility. Biotech ETFs can be highly volatile because biotech stocks are often highly volatile.
- Less control. Biotech ETFs could own biotech stocks that you don’t like. Buying these funds reduces the level of control you have over your investments.
FAQ
Biotech ETFs FAQ
What biotech ETF is best?
Different investors could find different biotech ETFs more attractive than others. The biggest biotech ETF based on assets under management is the iShares Biotechnology ETF (NASDAQ:IBB).
Is there a Vanguard biotech ETF?
No, Vanguard does not currently offer an ETF that focuses specifically on biotechnology. The closest thing to a biotech ETF in the Vanguard family is the Vanguard Health Care ETF (NYSEMKT:VHT), which does own some biotech stocks.
Is there a small-cap biotech ETF?
There are no ETFs that exclusively focus on small-cap biotech stocks. However, some ETFs do primarily own small-cap, micro-cap, and mid-cap biotech stocks, including the AdvisorShares Psychedelics ETF (NYSE: PSIL).
What are the top biotech stocks to buy?
Different investors could find different biotech stocks more attractive, depending on their risk tolerance and investing objectives. However, some top biotech stocks that many investors could like include Vertex Pharmaceuticals (NASDAQ:VRTX), Axsome Therapeutics (NASDAQ:AXSM), and Summit Therapeutics (NASDAQ:SMMT).
Does Schwab have a biotech ETF?
No, Charles Schwab (NYSE:SCHW) doesn’t currently manage a biotech ETF. However, some of its ETFs do include biotech stocks among their holdings.
Do biotech ETFs pay dividends?
Yes, some biotech ETFs do pay dividends. However, their dividend yields tend to be relatively small.
What are the signs of a high-quality biotech ETF?
Signs of a high-quality biotech ETF include significant assets under management, a track record of solid performance, and low expense ratios.
Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Alnylam Pharmaceuticals, Amgen, CRISPR Therapeutics, Gilead Sciences, Incyte, Regeneron Pharmaceuticals, Twist Bioscience, United Therapeutics, and Vertex Pharmaceuticals. The Motley Fool recommends SPDR Series Trust – SPDR S&P Biotech ETF. The Motley Fool has a disclosure policy.
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