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Making the Case for the S&P Biotechnology Select Industry Index

Biotechnology has famously improved our quality of life for decades. It addresses many global health problems, such as infectious and age-related diseases. Investors can see the potential for significant gains in this sector, due to its potential for new sources of return and diversification of risk. However, this also comes with the possibility of losses. The S&P Biotechnology Select Industry Index’s “basket” approach to allocation may provide a solution for those concerned with risk. It aims to provide diverse exposure to listed biotechnology (biotech) companies across large-, mid-, small-, and micro-cap companies in the U.S.

WHY INVEST IN BIOTECHNOLOGY? Based in genetic analysis and engineering, biotech firms primarily engage in the research, development, manufacturing, and, to a lesser extent, marketing of healthcare products based on genetic analysis and engineering. Biotech has a few important industry-specific characteristics. 

a. High Investment and Long Waiting Period: It can take as much as a decade to get a new drug from the test tube to the pharmacy shelf. During this lead time, biotech companies may not generate revenue, and hence are highly dependent on venture capital funds and trading publicly on stock exchanges to fund research and development. 

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