Trader Mailbag: IBB vs. XBI

February 14, 2017
/ By Michael Comeau

Dear Mike,

I noticed that sometimes in your newsletter (Editor's Note: sign up free at the bottom of this article), you talk about XBI and other times IBB.

What is the difference between these?

Carl

Thank you for the question Carl.

XBI and IBB are the two most popular biotechnology ETF's.

XBI is the symbol for the SPDR S&P Biotech ETF.

IBB is the symbol for the iShares Nasdaq Biotechnology Index ETF.

As you can see in this 10-year monthly chart comparing the two, over the long run, they more or less trade in a similar fashion:

But on a day-to-day basis, their performance can vary wildly.

Here's why.

The IBB ETF is concentrated in a small number of large cap biotechnology stocks..

As of February 14, 2017, its top 5 holdings are as follows:

Amgen (AMGN): 8.9%
Celgene (CELG) : 7.5%
Biotech (BIIB): 7.3%
Gilead (GILD): 7.0%
Regeneron (REGN): 6.6%

These 5 stocks comprise a whopping 37.3% of its assets, and a large movement in just 1 of them can disproportionately move the ETF.

For example, if Amgen was to rally 10%, it alone would push the entire ETF up 0.89%. (for my fellow math nerds: 10% X 8.9% = 0.89%)

XBI, on the other hand is much more diversified, an includes a number of small and mid-cap biotech stocks.

Here are its top 5 holdings:

ARIAD Pharmaceuticals (ARIA): 3.9%
Clovis Oncology (CLVS): 3.6%
Tesaro (TSRO): 2.9%
ACADIA Pharmaceuticals (ACAD): 2.9%
Exelexis (EXEL): 2.7%

These 5 names account for just 16% of assets vs. 37.3% for IBB's top 5 holdings.

Interestingly enough, while IBB gets significantly more media attention than XBI, IBB is actually less liquid.

XBI trades an average of 5.8 million shares per day vs. 1.4 million per day for IBB.

This is likely because of IBB's higher nominal price of $268 vs. XBI's $69.

Trader Mailbag: IBB vs. XBI

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