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ETF Specialist

Biotech ETFs: Which One Is Best Now?

The five biotech ETFs have very different portfolios with markedly different performance.

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For exchange-traded fund investors, there is virtually no other place in the equity markets where the benefits of diversification are more apparent than in the notoriously volatile biotechnology sector of health care.

One drug's odds of success typically have no bearing on another drug's likelihood of succeeding, and investors can think of an ETF as a portfolio of bimodal options. Many publicly traded biotechs are early-stage players with no drug on the market yet. A small subset of those firms will develop therapies that prove safe and effective and eventually come to market, often resulting in explosive success for those firms and instant economic moats, or competitive advantages. The vast majority of biotech companies, however, will fail to meet clinical hurdles for their drugs in development and fall by the wayside.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.