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Overview:
The American Stock Exchange Biotech Index (BTK) is the benchmark index for the
Biotechnology industry. This index was started on October 18, 1991 with a value
of 200.00. The index broke below 100 several times prior to 1999 and then peaked
during 2000 when it briefly reached 800.
Composition:
The BTK is comprised of 17 firms that are chosen to represent the Biotech
sector. The index is relatively unusual in that it is equal-dollar weighted.
This means that each stock receives the same weighting in the index. The index
is rebalanced four times per year to maintain continuity and to keep any stock
from dominating the index's value.
The table below lists the components of the
Biotech Index along with the weighting that each stock carries in the index
(data as of August 2004):
| Company |
Symbol |
%
of Index |
| Protein Design Labs |
PDLI |
6.5% |
| Chiron |
CHIR |
6.5% |
| Enzon Pharmaceuticals |
ENZN |
6.3% |
| Gilead Sciences |
GILD |
6.3% |
| Genzyme |
GENZ |
6.2% |
| MedImmune |
MEDI |
6.2% |
| Biogen IDEC |
BIIB |
6.1% |
| Cephalon |
CEPH |
6.1% |
| Amgen |
AMGN |
6.1% |
| Celgene |
CELG |
5.8% |
| Millennium Pharmaceuticals |
MLNM |
5.7% |
| Celera Genomics |
CRA |
5.7% |
| Genentech |
DNA |
5.5% |
| Affymetrix |
AFFX |
5.5% |
| Human Genome Sciences |
HGSI |
5.5% |
| Vertex Pharmaceuticals |
VRTX |
5.3% |
| Invitrogen |
IVGN |
4.7% |
Positives:
The Biotech Index is an excellent choice for investors who wish to track the
performance of the Biotech sector apart from the broad market. Although it has
been extremely volatile, the Biotech sector has historically outperformed the
overall market, so there is a large amount of interest in this area.
Drawbacks:
Many investors do not like the fact that all of the Biotech Index's component
stocks are equally weighted. This may distort the index's overall returns
because a handful of small companies could have a larger impact on performance
than some of the industry's largest players, such as Amgen (AMGN) and Genentech
(DNA). The index is also somewhat narrowly focused because it only holds 17
firms out of the hundreds of companies that operate in this sector.
How can I trade/invest in this index?
You can invest in the Biotech Index through many different options, futures and
ETFs. However, our favorite way to trade this index is through the Merrill Lynch
Biotech HOLDR (BBH). This fund is relatively liquid and carries a very low
management fee of $0.08 per share per year, which equates to an expense ratio of
less than 0.10% at current prices. This fund has also historically been less
volatile than other funds that attempt to track the Biotech Index, even though
it is dominated in composition by Biotech giants Amgen (AMGN) and Genentech
(DNA). The iShares Biotech fund (IBB) is another tempting choice because it too
is widely traded and contains virtually all Biotech firms (over 100). However,
it does have higher historical volatility than BBH.
Additional Information:
AMEX
Biotech Index - ^BTK
Merrill
Lynch Biotech HOLDR (BBH)
iShares
Nasdaq Biotech Index Fund (IBB)
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delivered total returns of +297.3% since 2003, and
it ranks in the top 10% of its category over the past decade.
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