The First Trust NYSE Arca Biotechnology ETF (FBT) was launched on 06/19/2006, and is a smart beta exchange traded fund designed to offer broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
There are some investors, though, who think it’s possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which tracks non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as the simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsors & Index
The fund is managed by First Trust Advisors. FBT has been able to amass assets over $1.44 billion, making it one of the larger ETFs in the Health Care ETFs. FBT seeks to match the performance of the NYSE Arca Biotechnology Index before fees and expenses.
The NYSE Arca Biotechnology Index is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services.
Cost & Other Expenses
Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for FBT are 0.55%, which makes it on par with most peer products in the space.
It’s 12-month trailing dividend yield comes in at 0%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
FBT’s heaviest allocation is in the Healthcare sector, which is about 100% of the portfolio.
Taking into account individual holdings, Exact Sciences Corporation (EXAS) accounts for about 5.93% of the fund’s total assets, followed by Grifols, Sa (adr) (GRFS) and Moderna, Inc. (MRNAs).
Its top 10 holdings account for approximately 39.24% of FBT’s total assets under management.
Performance and Risk
The ETF has lost about -1.87% and is up about 8.99% so far this year and in the past one year (as of 03/16/2023), respectively. FBT has traded between $123.32 and $165.37 during this last 52-week period.
The fund has a beta of 0.79 and a standard deviation of 25.75% for the trailing three-year period, which makes FBT a high risk choice in this particular space. With about 31 holdings, it has more concentrated exposure than its peers.
First Trust NYSE Arca Biotechnology ETF is not a suitable option for investors seeking to outperform the Health Care ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
The SPDR S&P Biotech ETF (XBI) tracks the S&P Biotechnology Select Industry Index and the iShares Biotechnology ETF (IBB) tracks the Nasdaq Biotechnology Index. SPDR S&P Biotech ETF has $6.60 billion in assets, iShares Biotechnology ETF has $7.95 billion. XBI has an expense ratio of 0.35% and IBB charges 0.44%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on the latest developments in the ETF investing universe, please visit the Zacks ETF Center.
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First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
Moderna, Inc. (MRNA) : Free Stock Analysis Report
iShares Biotechnology ETF (IBB): ETF Research Reports
Grifols, SA (GRFS) : Free Stock Analysis Report
Exact Sciences Corporation (EXAS) : Free Stock Analysis Report
SPDR S&P Biotech ETF (XBI): ETF Research Reports
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