A reader asked what I think is the best way to invest in biotech and how much should be in the sector.
The easier question is how much. The health sector represents 12% of the S&P 500. Roughly 10% of the health sector is biotech. So that means (in case that sentence is confusing) 1.2% of the S&P 500 is in biotech. Any more than that is an overweight. Not every client has biotech exposure, due to the volatility, but most do. The typical weight for clients with exposure is 2%-3%.
You can decide for yourself what a proper weight is.
The reader asks whether a stock or an ETF is a better way to go. Some clients own a stock and some on an ETF. I realize that puts me squarely on the fence but not every investor needs to take on the volatility of owning a biotech stock. An ETF offers the potential for capturing a big chunk of the move up but not cutting in half on bad FDA news. It should be clear that with an ETF there usually less risk taken so there will probably be less reward.
BTW Bob Pisani just said he follows about 1400 stocks.
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7 comments:
Bob Pisani covers 1400 stocks is another way of saying he covers none.
What's the deal with DNA anyway?
You'd think it's going bankrupt.
"Bob Pisani covers 1400 stocks is another way of saying he covers none"
My thoughts exactly.
There are only 1440 minutes in a day. If he never sleeps (or does anything else for that matter) he needs to do 1 a minute...
SPAM SPAM SPAM
That said there is an explosion of Biotech ETF's. The Nasdaq Based IBB, as well as Powershares PBE, the obsolete Biotech HOLDRs, Statestreet's XBI, as well First trust is comming out with a biotech fund as well.
If I was investing in this area I think I would go with PBE. I prefer to see some filtering of the stocks rather than show up and be counted criteria.
Personally I think the whole sector is way too volitile for investing but perfect for speculation.
kennycan
check your math, he still has 40 minutes to get to and from the NYSE (humor attempt)
I use HQL for this sector.
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