Four ETFs To Play An Aging Population

As the equity markets continue to remain volatile and are highly susceptible to overall investor sentiment, it is important to consider certain sectors which are able to prosper in times of challenging economic conditions and the biotechnology sector could be one. 

One of the primary drivers that biotechnology has appeal is the aging of the global baby boomer generation.  In fact, according to the Associated Press, in Japan, nearly a quarter of its total population is Japanese aged 65 and older and the Japanese government expects this group to climb to nearly 40 percent of the nation’s population by 2050.  A similar trend is emerging in the United States as the American Association of Retired Persons (AARP), expects nearly 70 million individuals to be Medicare beneficiaries over the next two decades as compared to 45.2 million in 2008. 

As this trend of an increasing aging population continues to emerge, demand for improvements in medicine and health care is expected to exponentially grow due to the fact that individuals seek to live longer lives.  Furthermore, focuses in medical advancements are expected to shift from traditional, expensive, curative therapies to newer preventive and specialized biotechnology therapies designed to prevent disease or reverse its course after it has started, therefore providing demand support for the sector. 

In a nutshell, the biotechnology sector is expected to witness increased demand and support over the next few years due to aging populations, regardless of the overall macro health of the economy and some ways investors can capitalize on this include:

  • SPDR S&P Biotech ETF (XBI), which is linked to the S&P Biotechnology Select Industry Index.  XBI is based on an equal-weighted index, which enables it to avoid excessive exposure to any single biotech company.  Nearly one half of XBI’s market capitalization is allocated to small-cap stocks and top holdings of XBI include Martek Biosciences Corp.(MATK), Onyx Pharmaceuticals (ONXX) and Regeneron Pharmaceuticals (REGN).
  • PowerShares Dynamic Biotechnology & Genome Portfolio (PBE).  PBE is based on the Dynamic Biotechnology & Genome Intellidex Index, which seeks to identify stocks poised to outperform.  Top holdings include Illumina Inc (ILMN), Alexion Pharmaceuticals (ALXN) and Sigma-Aldrich Corp. (SIAL) and most of the PBE’s assets are allocated to small and mid-cap stocks.
  • iShares Nasdaq Biotechnology Index Fund (IBB), which is linked to the NASDAQ Biotechnology Index and therefore has a higher concentration of large-cap stocks than the previously mentioned ETFs.  Some top holdings include Amgen Inc. (AMGN), Teva Pharmaceuticals (TEVA) and Celgene Corporation (CELG).
  • Biotech HOLDRs (BBH), which concentrates its assets on a handful of stocks.  Currently, Amgen Inc., Gilead Sciences (GILD), Biogen Idec (BIIB) and Genzyme Corporation (GENZ) make up nearly 86% of BBH assets. 

Disclosure: No Positions

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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