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October 15, 2007 BW Magazine Table of Contents

October 15, 2007 ETFs Table of Contents





OCTOBER 15, 2007 FOCUS ON ETFS

Biotech ETFs: It Pays To Shop Around
Fund performance is surprisingly varied

Relative Performance of ETFs
If you buy and sell an exchange-traded fund, you'll incur more than a trading commission. As with stocks, there's a difference between what a market maker will charge an ETF buyer and what that same dealer will pay a seller. The difference is the "bid-ask spread," and for investors, the smaller the spread, the lower the cost. As a rule, when an ETF sees little trading activity, bid-ask spreads can get wide.

Exchange-traded funds are supposed to be simple: One investment gets you a whole market or a specific sector. You'd think ETFs working the same sector would have more or less the same results. But as biotech ETFs demonstrate, that's not necessarily the case.

Even if the stocks are similar, ETFs can behave differently. In funds weighted by market cap, bigger companies have more sway. In equal-weighted funds, all companies have the same impact. They'll do better when the smaller ones shine.
  SPDR S&P Biotech (XBI) Powershares Dynamic Biotech & Genome Portfolio (PBE) First Trust Amex Biotechnology (FBT) iShares Nasdaq Biotechnology (IBB) Biotech HOLDRs (BBH)
Price ($) $58.75 $19.45 $25.70 $84.01 $176.95
Year-to-Date Return (%) 27.3 9.9 9.2 8.0 -3.7
Number of Stocks 31 30 20 170 15
How Stocks are Weighted Equally Proprietary Equally Market cap Market cap
Top Three Holdings Myriad Genetics, Cepheid, Pharmion Imclone Systems, Gilead Sciences, Amgen Vertex Pharmaceuticals, Biogen, Celgene Amgen, Gilead Sciences, Celgene Genentech, Amgen, Gilead Sciences
Top Three as a % 9.7 16.2 18.1 24.1 74.0
Avg. Market Cap ($billions) 9.6 12.5 14.3 2.1 16.7
Comments This index starts with every biotech in the S&P universe, then trims the list based on market cap and trading volume. Powershares uses its own "Intellidex," choosing stocks by such criteria as growth rate, risk, and valuation. With FBT, you know what you're getting: 20 top biotech stocks with very little turnover. The clear leader in trading volume, iShares contains nearly every biotech-related stock in the NASDAQ. This portfolio is never reweighted, and its stock holdings rarely change.

All data Oct. 1 Data: ETF sponsors, businessweek.com




By Ben Levisohn
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