3 ETFs For the Coming Genomics Revolution

Key Points

• The field of genomics is on the verge of major breakthroughs that could revolutionize drug creation, disease detection, and more.
• Genomics ETFs like IDNA, ARKG, and HELX aim to diversify to gain exposure to the space while mitigating risk.
• These funds have returned 30% or more in the last year, a sign of potential momentum to come.

Key developments in the field of genomics—the study of the complete DNA of an organism—may make it possible to customize drug therapies, detect diseases, and engineer enzymes for improved health care outcomes. It's no wonder, then, that biotech and pharmaceuticals companies are moving quickly to capitalize on breakthroughs in the space.

Despite positive signs from a technological standpoint, though, these industries remain highly risky for investors. This is a reason why those keen to build exposure to genomics companies may be safest doing so through broader access available via exchange-traded funds (ETFs). Even given the relatively narrow investment niche that genomics firms represent, there are still multiple options for ETFs exploring this theme. Some notable options below all provide investors diversification within the space to help moderate risk.

A Well-Priced Option for Investors Seeking Both Passive Income and Performance

The iShares Genomics Immunology and Healthcare ETF NYSEARCA: IDNA is among the lowest-cost funds providing targeted exposure to the genomics field, with an expense ratio of 0.47%. The fund tracks an index of companies involved in not only the genomics industry, but also in immunology and bioengineering. In practice, this means just over 50 holdings from the broader U.S. biotech space.

IDNA holds some big-name companies that will likely be familiar to investors not deeply connected with the biotech world—including Moderna Inc. NASDAQ: MRNA, the second-largest position in IDNA's portfolio—as well as many smaller or more niche firms as well. The portfolio is fairly concentrated, with just 10 stocks representing about half of the invested assets.

Year-to-date (YTD), IDNA has returned close to 10%. However, look at performance over the past 12 months, and this figure grows to 40%, strongly outperforming the market. On top of this, IDNA also offers a modest dividend with a yield of about 1% for a passive income boost.

The fund is not the most heavily traded, with one-month average trading volumes in the area of 45,000, so it's possible that active traders will encounter some liquidity concerns.

A Top-Performing, Highly Liquid Active Fund Comes at a Greater Cost

One of the oldest funds in the genomics space—and, with about $1.3 billion in assets under management, among the largest—is the ARK Genomic Revolution ETF BATS: ARKG. This actively managed fund comes with a higher price tag than IDNA, charging an annual fee of 0.75%. However, for this price, investors can expect the responsiveness to shifting market conditions that typically only comes with portfolios overseen by fund managers rather than those targeting underlying indices.

ARKG holds 33 North American companies in the genomics field, including companies positioned to benefit from advances in stem cell therapies, gene editing and therapy, and diagnostics.

The smaller basket does mean higher concentrations, and 10 companies make up more than 60% of the overall portfolio.

Nonetheless, this strategy has paid off: ARKG has beaten the market with YTD returns above 15% and a 50% increase over the last year.

Investors trade ARKG much more actively than IDNA—and other competitors in the genomics ETF space, for that matter. The fund has a one-month average trading volume of over 2.5 million.

A Global Focus for a Modest Price, But Liquidity May Stop Investors

The Franklin Genomic Advancements ETF BATS: HELX is by far the smallest and least-traded fund on this list, so investors should beware of potential liquidity limitations before investing. What this actively managed fund does provide, however, is a somewhat broader portfolio of 60 names representing genomics companies across developed markets.

The expansion outside of North America may appeal to investors looking for a global focus, and HELX's expense ratio of 0.50% is still fairly modest considering its niche strategy and wide geographical reach. Still, the fund's track record this year is not as compelling—HELX is down slightly YTD. Looking back across the past 12 months, though, this improves considerably; HELX has climbed by more than 30% over that period.

The biggest concern for investors, however, may be HELX's low asset base of just $23 million, as well as the fact that the fund trades just a few hundred shares per month on average. This may make it appropriate for investors looking to buy and hold, but those considering a more active approach to trading might hesitate, despite HELX's broader global reach as compared to either of the funds above.