Four ETF Plays for Biotech

The difference between these two strategies can be seen by their weightings in a firm like HGSI. IBB lists this company as a minor holding, accounting for less than 2%. By comparison the firm plays a more important role in FBT and XBI where it represents 5% and 4% respectively.

FBT's index is comprised of 20 companies, including such top holdings as SQNM, OSIP and MIL, which account for 21% of the fund.

Out of the 26 companies in XBI, the top players include: OSIP, Incyte(INCY) and Dendreon(DNDN), which collectively account for 15% of the fund.

Though investors can gain ample exposure to the biotech industry using either FBT or XBI alone, playing them together will provide access to an even broader array of companies. The two funds share a number of identical holdings, but investors can gain access to 34 companies by including both in a single portfolio.

So far in 2010, FBT and XBI have outperformed their market-cap-weighted cousin, IBB. Given the equal-weighted nature of these two funds, I expect this type of performance to continue into the future.

-- Written by Don Dion in Williamstown, Mass.

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