As they save lives, biotech companies are simultaneously making a lot of money for investors.
That's why the hottest ETFs (exchange-traded funds) on the planet since the bull market began in March 2009 invest in biotech companies.
The First Trust NYSE Arca Biotech ETF(FBT) has skyrocketed more than 500% over that timeframe. That trounces the S&P 500's 200% gain. The fund outperformed by owning a bunch of the sexiest names in the biotech industry, including Gilead Sciences(GILD), Biogen(BIIB) and Novavax(NVAX).
ETFs specialize in giving investors diversified exposure to a specific corner of the market, like biotech. These pooled vehicles invest in numerous stocks, bonds and commodities -- not just one.
That's especially helpful when investors want exposure to a volatile sector like biotech, which experiencesturbulence tied to the risks involved with getting drugs approved by the government.
As an added bonus, ETFs are cheap. Or at least cheaper than most mutual funds. That's partially because most ETFs are index funds, meaning they track a basket of assets that's already been created by highly-paid professionals.
Other biotech related- ETFs are also generating spectacular returns, including the iShares Nasdaq Biotechnology ETF(IBB) and the PowerShares Dynamic Pharmaceuticals ETF(PJP). The latter ETF combines biotech stocks with more traditional pharmaceutical players like Eli Lilly(LLY) and Bristol-Myers Squibb(BMY).
Another big winner is the SPDR S&P Pharmaceuticals ETF(XPH), which owns biotech names like Botox maker Allergan(AGN) and Salix Pharmaceuticals(SLXP).