Healthy Biotech and Pharma ETFs

IBB has the largest volume out of this group and is perhaps the best choice for investors looking to diversify with biotech. Its low-cost structure concentrates on larger biotech firms while offering 130 holdings to give investors a larger exposure to the sector. While BBH is also made up of big name firms, the fund is extremely top heavy and potential investors may be better off just buying top components like Amgen and Gilead on their own.

Pharmaceutical ETFs provide defensive diversification for investors looking to invest in health care while avoiding providers and medical device firms. ETFs such as iShares Dow Jones Pharmaceuticals Index(IHE), HOLDRS Merrill Lynch Pharmaceutical ETF(PPH), PowerShares Dynamic Pharmaceuticals(PJP) and SPDR S&P Pharmaceuticals(XHP) help investors gain exposure to the defensive and non-cyclical pharmaceutical sector. The two major concerns facing the pharmaceutical industry today are health care reform and mega-mergers, factors that will affect any investment in this selection.

Generic drugs have become more prevalent in recent years, cutting back the profits for some of the large drug-makers that comprise the sector. Major health care law suits, affecting companies like Merck(MRK) and Wyeth(WYE) can unexpectedly wrench these companies into the limelight and wreak havoc among shareholders. The Obama administration's health care reform has dramatically affected stock prices in this sector, but it is possible that in the panic these companies have become oversold.

PPH may be the best bet for investors looking to allocate a portion of their portfolio to pharmaceuticals. PPH is top-heavy, with the fund's portfolio divvied up between 18 pharmaceutical stocks -- but big pharma could be the right place for investors in an uncertain climate.

PPH is also a very large and liquid ETF, and over 1 million shares of the fund change hands each day. Investors should be cognizant of buying restrictions -- shares can only be purchased in lots of 58. While this restriction may hinder some investors, others will be attracted to this fund's low, nominal fee.

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