The ETFS S&P Biotech ETF (ASX: CURE) is one of the more novel ETFs on the ASX but it has got off to healthy start (pun intended). Below, I’ll list some of the strengths and risks for CURE.
ETF 101
Exchange traded funds, or ETFs, are investment funds that are listed on a securities exchange. They can be active or passive and the fees are usually lower than an unlisted investment fund. The following video explains ETFs but you might also refer to our ETF education page.
The S&P Biotech CURE ETF
The ETFS S&P Biotech ETF is run by a company called ETF Securities (ETFS), Australia’s second-oldest ETF provider. We’ve provided an overview of ETF Securities on this page.
As the name suggests, this ETF invests in US-based biotechnology companies and is designed to track the performance of the S&P Biotechnology Select Industry Index before fees and expenses.
The ETF has around 124 holdings with the largest holding making up just 2.16% of the portfolio. The two largest holdings are Array BioPharma Inc (NASDAQ: ARRY), a $10 billion company, and Global Blood Therapeutics Inc (NASDAQ: GBT).
In terms of market capitalisation, around 57.1% of the ETF is allocated to small caps and 8.2% to large caps.
This ETF has been operating for less than a year, but year-to-date it has returned 21.83%. Over a five-year period, the index that it tracks has returned 18.29% per annum.
CURE’s Fees and Some Risks
The management fee for CURE is 0.45% per year, which is broadly in line with some of the other growth ETFs mentioned in this article, although there are cheaper options around.
The main risk with this ETF is the lack of diversification. Although there are 124 holdings, they are all companies within the same industry. As CURE is an industry-specific ETF, you should think twice about making it a large holding in your portfolio.
The biotech industry also comes with its own set of risks. Most of the companies are heavily research focused, and the fact sheet for this ETF points out that many biotech companies make little or no sales/revenue.
The success of the company can often depend on one breakthrough or regulatory approval, making it a speculative industry.
The current weighted average price-earnings (PE) ratio of the CURE ETF is 29.6 times, while the S&P 500 PE ratio sits around 21 times. This reflects the low earnings and comparatively high prices of these biotech companies.
Summary
The CURE ETF could be an attractive option for growth, but I’d avoid allocating a large percentage of my portfolio due to the concentration in one industry and the speculative nature of biotechnology companies.
For some balance, you might consider pairing this ETF with our another one of the 200 or so ETFs on our complete list of ASX ETFs.
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Disclosure: At the time of writing, Max does not own shares/units in any of the companies/funds mentioned.
