Global Biotech ETF

Also on Thursday, PowerShares is planning to launch its Global Biotech Portfolio (Nasdaq: PBTQ), based on the NASDAQ OMX Global Biotech Index.

The index targets the largest and most liquid biotech stocks and uses a modified market-cap-weighting methodology, with quarterly rebalancing. No single name is allowed to comprise more than 8% of the benchmark's total holdings.

Some big biotech funds already are available in the market, most notably the $1.78 billion iShares Nasdaq Biotech Index (AMEX: IBB). But PBTQ's global twist is the differentiating factor.

Specifically, besides IBB, the following pure-plays in the field target domestic stocks: the First Trust AMEX Biotech Index (AMEX: FBT) and the Biotech SPDR (AMEX: XBI). In fact, PowerShares already has an existing ETF as well—its Dynamic Biotech and Genome Portfolio (AMEX: PBE). 

IBB is the broadest fund, holding 149 securities, whereas the SPDR and First Trust's FBT hold fewer than 30 securities. PowerShares' existing PBE differentiates itself by way of its more active management approach. It uses an Intellidex index, which is based on quantitative methodologies. According to Morningstar, PBE has a turnover rate of 91% per year.

As a group, considerable overlap can be found among the various biotech ETFs. In the newest competitor in the sector, PBTQ's biggest holdings in its underlying index as of June 30 were: Amgen, Gilead Sciences, Genentech, Celgene and Genzyme (all with 8% weights); CSL, Biogen Idec, Actelion and Vertex Pharmaceuticals (all with 4% weights); and Cephalon slightly below at a 3.87% weight.

The XBI ETF shared eight of the top 10 holdings of PBTQ. At the same time, IBB shared six of these top 10 holdings and FBT shared five of the top 10 holdings—as does the existing PowerShares biotech play, PBE.

Overall, every one of the funds has between 48% to 53% of its holdings in its top 10 stock weights.

All the funds have their heaviest weighting to the mid-cap sector. But PBTQ may most closely resemble IBB in targeting the largest and most liquid companies in the sector. IBB is the only biotech portfolio that has almost as large of a weighting in the Morningstar "giant" stock category (26%) as it does in mid-cap stocks (27%). XBI has 13.7% in giant stocks and 43% in mid-cap stocks, as of Aug. 31; FBT had 15.8% in giant socks and 41.3% in mid-caps; while PBE had 17% in giant stocks and 43% in mid-caps, as of July 31.

On an expense ratio basis, the new PowerShares fund is the most costly, at 0.75% annually; IBB charges 0.48%; FBT charges 0.60%; XBI charges 0.35%; and PBE charges 0.63%.

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