Australian issuer ETF Securities is listing a new biotech ETF, the first biotech ETF available in Australia. The ETFS S&P Biotech ETF (CURE) will track the S&P Biotechnology Select Industry Index, which is the same index tracked by State Street’s $4.5bn XBI in the US.
CURE picks biotech companies from the US healthcare sector; biotech makes up roughly one-fifth of the US healthcare industry. The index then equally weights the companies, which reduces single name risk and creates a tilt towards small and micro caps.
As the fund is Australia domiciled and not a cross listing, investors will not be required to fill out US tax forms.
CURE will charge 0.45%.
Analysis – no securities lending; not for the faint-hearted
While State Street’s US-listed product tends to beat its index due to securities lending revenue, we understand that ETF Securities has no intention at this stage to lend out the underlying stocks. Unlike in Europe and the US, most Australian ETFs do not engage in securities lending.
While XBI (and therefore CURE, as it tracks the same index) has a history of providing a market-beating return, it does so by all accounts by taking on more risk. As the performance chart shows, XBI is very volatile: 5% daily price movements up or down are not uncommon, and the fund can underperform the market for years at a time. While this fund is potentially very rewarding, it requires a high level of risk tolerance and ideally a long investment horizon.