Small Biotech vs Big Biotech

Weighting biotech equally — giving tiny clinical-stage names the same slice as the giants — won.

The rule. Buy XBI (SPDR S&P Biotech ETF, which weights its holdings roughly equally) and hold it. Benchmark is buying and holding IBB (iShares Biotechnology ETF, which is capitalisation-weighted) over exactly the same period.

What actually happened.

• $10,000 became $85,221. The same $10,000 in Cap-weight biotech (IBB) became $71,486. This strategy beat the benchmark by $13,735.
• Compounded at 15.3% a year vs 14.0% for the benchmark.
• Best year: 2013 (+48%). Worst year: 2022 (-26%). This is not a smooth ride.

The catch. At its worst, this strategy fell -64% from a prior peak — deeper than the benchmark's -40%. Would you have held through that? Most people don't. That's the whole game.

The takeaway. It worked here — but "it worked in the past" is the most expensive sentence in investing. The edge is real only if it survives costs, taxes, and the drawdown above. Show your work, then decide.