E SPDR Biotech ETF: A Quality Long-Term Bet

The SPDR Biotech ETF (XBI) has been on a tear ever since global investors started chasing biotechnology stocks after the COVID-19 disruption slammed into us. The investor interest in this sunshine sector is not just because of the vaccine race, but also because nations will give more prominence to healthcare spends in the post-COVID-19 age.

I am still bullish on XBI for the long-term, and here are the reasons why.

Proven Long-Term Outperformer

XBI has outperformed its peers such as iShares Nasdaq Biotechnology ETF (IBB) and Direxion Daily S&P Biotech Bull 3x Shares ETF (LABU) by a wide margin from the long-term point of view.

(Click on image to enlarge)

Image Source: Seeking Alpha

Investors who have held on to XBI for 10 years have seen their capital appreciate by 565%, plus dividends. Investors who have bought the stock at any point of time in the pre- or post-COVID-19 period have gained (see the table above).

XBI also has largely outperformed the S&P 500 (SP500) over the long term (10 years). Investors who bought XBI 10 years ago or 3 years ago have made more money than they would have made had they invested in the SP500. However, the SP500 outperformed XBI for investors who bought it 5 years ago. That said, XBI caught up quite nicely and raced ahead of SP500 as time progressed (see table below).

(Click on image to enlarge)

Image Source: Seeking Alpha

A Diversified Biotech Portfolio

Image Source: Self-Generated

Out of the company’s total funds, 14.24% are invested in a variety of biotechnology companies making products that treat a wide range of conditions, including infectious diseases, cancers, opioid overdoses, intractable diseases, rare diseases, etc. Companies that are into genetic information, diagnostic companies, and those that make drug delivery technologies are included as well.

The diversity in XBI’s top 10 holdings suggests that its research team is top-quality and knows how to hedge risks well. What I specifically liked was that this ETF has not focused only on COVID-19 plays, which could have been a bad decision.

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Disclosure: I have no position in the stocks discussed, and neither do I plan to buy/sell it in the next 72 hours. I researched and wrote this article. I am not being compensated for it (other ...

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