ETFs, or exchange traded funds, are great for investors who are looking to invest in entire sectors, like technology or energy sectors. Biotech ETFs gives you the benefit of investing in this highly lucrative industry, while diversifying across multiple biotechnology companies. This investment strategy also has the added benefit of being an ETF.
There are several major factors that impact the biotech sector. One is that it is heavily dependent on research and development as well as federal regulations. The market already accounts for drugs that have already passed through R&D, FDA approval and is out being sold to the public. Returns for any investment in a biotech company’s stock depends mostly on future R&D and clearing clinical trials.
This makes it really hard to invest in individual biotech companies. In fact, really any smart investor who buys stocks in this sector diversify across many different companies. They know that one may have a major breakthrough while another spends billions of dollars on a flop. You can never really know.
Another difficult aspect of investing in biotech is that they keep a lot of their R&D secret so you never know all that they are working on. Once they release what they are doing to the public, it’s still a gamble because it has to pass FDA regulations.
Overall as an industry, biotech can have very high return on investment. But finding the good companies that will give you the most bang for your buck can be a crap shoot. That is why buying a biotech ETF to diversify is a great way to go.
First of all, you don’t have to pick individual companies. Secondly, you don’t have to keep up with news, clinical trials and other legal issues. You simply let the experts pick your stocks in an industry that is hard to fail with.
Benefits of ETFs
ETFs are very advantageous because there aren’t expense ratios or management fees associated with them like with mutual funds. In fact, all you pay with ETFs are the trading commissions like you would if you were buying or selling stocks.
In addition, you can trade ETFs all day long. Well, during market trading hours at least. This is not the case with mutual funds, an aspect that might bite you in the end. With traditional mutual funds, you are allowed to vest or divest only once at the end of the day. That means if there is a major news break that affects your fund, you can’t do anything about it until the end of the day. You can see how this can be a problem if the news is released at the beginning of the trading day.
For an article on another good sector fund, you can go to Natural Gas ETF for industry analysis and recommendations. You can also read about small cap funds and growth funds, both of which are designed for high growth returns for your investment portfolio.