Biotech Investing: Spread Your Risks With ETFs

The biotechnology sector is once again finding its footing, with some exchange traded funds (ETFs) focused on the sector up more than 30% since the market’s March 9 low. But there have been stumbling blocks on the way back to profitability.

A reputable biotechnology company has filed for Chapter 11 this week, deCODE Genetics Inc (DCGN), the company that famously compiled the genetic code of nearly every Icelander for research. The company crushed under $200 million in debt and investors may have to call it a wash, reports Brettt Arends for The Wall Street Journal.

For other companies in the sector, the outlook is looking brighter. IPOs are coming back and some of the speculative companies have surged off their lows.

Talecris Biotherapeutics (TLCR) just raised $950 million, a sign that investors are ready to wade back into the markets again.

Biotech can be a risky sector with mixed investment results. Many companies are working on projects that may one day bring profits, but those projects may not see the light of day for years, if ever.

That’s where ETFs come in. How can anyone know which biotechnology companies will be winners in the long run? ETFs help spread out the risk and eliminate the need for guesswork and single-stock picking.

If you decide this sector is right for your investment needs, go in with a strategy in place and a stop-loss in mind.

• PowerShares Dynamic Biotech & Genome (PBE): up 18.2% year-to-date

• SPDR S&P Biotechnology (XBI): down 4.5% year-to-date

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