Biotechnology Mutual Funds

Biotechnology mutual funds invest in companies that are predominantly involved in the development of pharmaceuticals and innovative therapies but also include firms that use genetic engineering for such purposes as developing genetically modified plants and the development of organisms that can be used for such things as the in situ treatment of toxic wastes.

You may not have heard much about Biotechnology lately. It seems to have had its day in the sun back around the early 1990s when it was the newest Big Thing. But when the industry failed to produce any big breakthroughs right away, stock prices plateaued and interest in the sector died. But Biotechnology is alive and well, plodding away in semi obscurity and making significant technological advancements. Now, that may sound good, but deciding how and if to play this sector is rather difficult.

The Biotechnology funds vary vastly in composition and in long-term performance. Due to their difference in composition, it's hard to compare these funds to others in the category and the published category averages therefore have little value as performance benchmarks. So you're pretty much on your own when evaluating these funds. Be sure you understand the nature of each fund you consider, use their risk adjusted rates of return to compare them to a broad market index and pick funds with a low correlation to the general market.

Biotechnology is a highly speculative and highly volatile sector. If you invest in this sector, be prepared for a rough ride and plan on staying on for the long haul. Although the potential for high returns exists, the real value of this sector is its diversification potential, as some of the Biotechnology mutual funds have very little correlation with the general market.

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