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Margaret asks: I have an ii ISA and I'm interested in investing in biomedical companies that specialise in gene therapy. Is there any way I can find such companies, or an exchange-traded fund (ETF), trust or fund that specialise in this area?
Kyle Caldwell (pictured above), Collectives Editor, interactive investor, says: over the past five years or so it has become much easier for investors to potentially profit from big future trends through thematic ETFs.
A thematic ETF tracks an index of companies expected to benefit from the same trend. Rather than rely on the stock-picking ability of a fund manager, the investor gains rules-based passive exposure.
There are numerous themes, but the main ones include cloud computing, robotics and automation, adoption of electric cars, and clean energy.
There are no ETFs that offer 100% exposure to gene therapy or genome sequencing. However, this theme does form part of the following three ETFs: iShares Healthcare Innov ETF USD Acc GBP (LSE:DRDR), L&G Healthcare Breakthrough ETF (LSE:DOCT), and HAN-GINS Indxx Healthcare Megatrend Equal Weight UCITS ETF (LSE:WELL).
The iShares Healthcare Innov ETF (LSE:DRDR) follows the up-and-down fortunes of the STOXX Global Breakthrough Healthcare Index, which is “composed of developed and emerging market companies which are generating significant revenues from specific sectors focused on pushing the boundaries in medical treatment and technology.”
The ETF has exposure to medical devices, biotech and the healthcare innovation ecosystem. iShares estimates its exposure to genomic stocks was 33% of the ETF at the end of 2021. It has 194 holdings, and its yearly fee is 0.4%.
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The L&G Healthcare Breakthrough ETF tracks the performance of the ROBO Global® Healthcare Technology and Innovation Index, which is “a basket of companies that are actively engaged in the healthcare technology value-chain.”
Its marketing literature adds: “The index is comprised of companies which are publicly traded on various stock exchanges around the world that have a distinct portion of their business and revenue derived from the field of healthcare technologies, and the potential to grow within this space through innovation and/or market adoption of their products and/or services.”
At the end of 2021, it had 13% exposure to genomics. The top two sector weightings, at 26.6% and 14.1%, are medical instruments and diagnostics. The ETF has 88 holdings, with a yearly fee of 0.49%.
The HAN-GINS Indxx Healthcare Megatrend Equal Weight UCITS ETF invests in 10 sub-themes. At the end of December, the ETF held 18% in genome sequencing stocks. The ETF rebalances its holdings twice a year, so that sector weighting will change in future.
The ETF says it “is designed to capture securities at the cross-roads of medicine and technology which are shaping the future of healthcare.” It has 100 holdings, and a yearly fee of 0.59%.
The other nine themes the ETF invests in are robotics, nanotechnology, healthcare trackers, biological engineering, bioinformatics, neuroscience, medical devices, telemedicine and healthcare analytics.
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What these three healthcare ETFs have in common is that they track indices which aim to track new and innovative parts of the healthcare sector. Therefore, they have holdings that can also be defined as growth and technology stocks. As a result, all three have over the past month been negatively impacted by the market rotation out of growth stocks and into value stocks.
Investing in a theme can add spice, but is high risk, so should only form a small part of a diversified portfolio.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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