The Defiance Nasdaq Junior Biotechnology ETF (IBBJ) is still in its infancy in the biotechnology ETFs arena, having debuted just last month, but a big opportunity comes with this rookie ETF.
IBBJ tracks the Nasdaq Junior Biotechnology Index (NBIJR), which is home to 177 stocks. The benchmark caps components’ market value at $5 billion at the time of inclusion.
IBBJ’s 176 member firms “are “engaged in biotech research and development, the sale or licensing of biological substances for the purposes of drug discovery and diagnostic development; and pharmaceutical manufacturers of prescription or over-the-counter drugs, including vaccines and development and manufacturing companies,” according to Defiance.
None of the components in the NBIJR exceed weights of 3.40%, indicating IBBJ is a diverse ETF that doesn’t expose investors to significant single stock risk.
“As of the end of June 2020, of the 177 constituents in NBIJR, the top 15 represented 27% of the index weight. The top 30 names represented approximately 47%, and the top 5 represented 11%,” according to Nasdaq Global Indexes.
The small-cap healthcare segment and sector-related ETFs have been a surprising standout in the markets so far this year.
Fast-growing companies have been outperforming their value-styled peers, or companies described as trading at a low multiple of their book value. The growth category has pushed ahead of value through much of the decade-long bull rally, and it continues to hold true in 2020.
“In terms of market capitalization for the overall group, the average was $2.0bn, while the weighted average was $3.5bn,” notes Nasdaq Global Indexes. “Conversely, the median was only $1.2bn. This is reflective of the substantial representation of smaller stocks in the index, with 80 components under $1bn of market cap comprising 14% of the index weight.”
A primary benefit of IBBJ is that this is a growth fund chock full of companies that emphasizing research and development, which is critical to success in the biotechnology arena. In fact, IBBJ components are more R&D intensive than the large-cap names found in the Nasdaq Biotechnology Index (NBI).
“As one might reasonably expect, constituents of NBIJR tend to engage in above-average levels of Research & Development. For the group as a whole, R&D expense totaled $19.6bn in 2019, a stunning 63% of these companies’ total revenues – vs. ‘only’ 28% on an equivalent basis for NBI,” notes Nasdaq Global Indexes.