Which Small-Cap Biotech ETF Fits Your 2025 Investment Strategy?

For investors seeking exposure to the biotech sector without betting on individual companies, small-cap biotech ETFs offer a compelling solution. These funds pool multiple biotech companies into a single vehicle, reducing the risk of overexposure to any single stock. With the biotech landscape constantly evolving, understanding the differences between available small-cap biotech ETF options can help investors make more informed choices.

The Conservative Growth Approach: Focused Holdings

The ALPS Medical Breakthroughs ETF (ARCA:SBIO) with US$95.57 million in AUM represents one of the larger players in the small-cap biotech space. This fund targets companies with drugs in Phase II or Phase III FDA clinical trials, concentrating on firms with market caps between US$200 million and US$5 billion. With 102 holdings predominantly split between small- and mid-cap positions, the fund maintains diversification while focusing on clinical-stage companies. Cytokinetics (NASDAQ:CYTK) leads at 3.62 percent weighting, followed by Merus (NASDAQ:MRUS) at 3.51 percent and Avidity Biosciences (NASDAQ:RNA) at 3.43 percent.

Similarly, the Tema Oncology ETF (NASDAQ:CANC) with US$82.42 million AUM takes a thematic approach by concentrating specifically on cancer treatment developers. Launched in August 2023, this fund encompasses 51 holdings focused on oncology innovators, including CAR-T cell therapies and bispecific antibody approaches. Revolution Medicines (NASDAQ:RVMD) carries the highest weight at 6.29 percent, with Eli Lilly and Company (NYSE:LLY) at 5.47 percent and Genmab (NASDAQ:GMAB) at 5.32 percent among top positions.

The Tema Heart and Health ETF (NASDAQ:HRTS) at US$51.68 million AUM follows a similar disease-focused strategy, tracking biotech companies addressing diabetes, obesity and cardiovascular conditions. This 47-holding fund skews toward large-cap exposure at approximately 75 percent, with Eli Lilly and Company again prominent at 8.47 percent weight, followed by Abbott Laboratories (NYSE:ABT) at 4.58 percent and AstraZeneca (NASDAQ:AZN) at 4.39 percent.

The Aggressive Trading Approach: Leveraged Instruments

For investors with shorter time horizons and higher risk tolerance, leveraged biotech ETFs present alternative strategies. The ProShares Ultra NASDAQ Biotechnology (NASDAQ:BIB) with US$62.42 million AUM offers twice-daily long exposure to the broader NASDAQ Biotechnology Index. Among its 260 holdings, Vertex Pharmaceuticals (NASDAQ:VRTX) ranks highest at 5.05 percent, followed by Amgen (NASDAQ:AMGN) at 5.01 percent and Gilead Sciences (NASDAQ:GILD) at 4.93 percent. However, this leveraged structure carries elevated risks unsuitable for buy-and-hold investors.

The Direxion Daily S&P Biotech Bear 3x Shares (ARCA:LABD) with US$78.98 million AUM operates on an inverse basis, delivering three times the daily inverse return of the S&P Biotechnology Select Industry Index. This derivative-based fund uses futures contracts rather than holding individual stocks and is explicitly designed for tactical short-term positioning. Leveraged inverse ETFs experience significant decay over extended periods due to market volatility, making them inappropriate for long-term holdings.

Selecting Your Small-Cap Biotech ETF

The choice between small-cap biotech ETFs depends on investment objectives and risk appetite. Clinical-stage focused funds offer targeted exposure to development-phase companies, while thematic approaches concentrate risk within specific disease areas. Leveraged instruments serve tactical roles for experienced traders but carry risks unsuitable for most long-term portfolios. All data reflects conditions as of October 7, 2025, with assets under management ranging from US$51.68 million to US$95.57 million across these five small-cap biotech ETF options.