Five ETF Routes to Small Cap Biotech Stocks: A Strategic Overview

Investing in small cap biotech stocks has become increasingly accessible through exchange-traded funds, which allow portfolio managers to gain diversified exposure to emerging biotechnology companies without purchasing individual shares. Rather than bearing the full risk of single-stock investments, investors can leverage ETFs as vehicles that distribute risk across multiple biotech holdings. This approach has proven particularly valuable for those seeking to participate in the small cap biotech sector while maintaining a degree of portfolio protection.

Understanding the Appeal of Small Cap Biotech ETFs

The biotechnology sector continues to attract institutional and retail investors alike, particularly in the small cap space where innovation and growth potential often converge. Through specialized ETFs, investors can access these opportunities more strategically than standalone stock selection. When market volatility strikes a single biotech company within an ETF’s portfolio, the impact on overall fund performance remains muted due to the diversification effect. Below is an examination of five small cap biotech stocks-focused ETFs with assets under management below US$100 million as of mid-February 2026.

1. ProShares Ultra NASDAQ Biotechnology ETF (BIB)

Fund Size: US$89.54 million

For traders with a decidedly bullish stance on biotech innovation, the ProShares Ultra NASDAQ Biotechnology ETF offers a distinct proposition: twice-daily leveraged long exposure to the broad NASDAQ Biotechnology Index. Established in April 2010, this instrument appeals to short-term strategists positioning for biotech sector strength. However, this leveraged structure carries significant implications—analysts caution those with conservative risk profiles or buy-and-hold mandates against utilizing this fund due to its heightened daily volatility and compounding effects over extended periods.

The fund maintains 263 individual small cap biotech stocks and larger holdings. Top positions include Gilead Sciences at 6.78 percent, Amgen representing 6.23 percent, and Vertex Pharmaceuticals at 6.17 percent of portfolio weight. These concentrated positions reflect the fund’s focus on capturing sector momentum.

2. Direxion Daily S&P Biotech Bear 3x Shares (LABD)

Fund Size: US$68.18 million

This fund operates on an inverse principle, delivering three times the daily inverse return of the S&P Biotechnology Select Industry Index. Rather than climbing when biotech rallies, LABD rises as the index falls—a structure designed exclusively for tactical, short-term positioning. The fund’s use of financial derivatives such as futures contracts rather than direct small cap biotech stocks ownership distinguishes it from traditional equity ETFs.

Leveraged inverse instruments carry substantial complexity and market sensitivity risk. Extended holding periods can result in value erosion due to the mathematical mechanics of daily rebalancing. Consequently, LABD functions best as a hedging or short-term tactical tool rather than a core portfolio holding.

3. Tema Heart and Health ETF (HRTS)

Fund Size: US$56.55 million

Tema’s specialized approach targets small cap biotech stocks concentrated in therapeutic areas with demonstrable market expansion: diabetes, obesity, and cardiovascular conditions. Launched in November 2023 and subjected to multiple name refinements—most recently rebranding on June 27 from its “GLP-1 Obesity and Cardiometabolic” designation—this fund reflects evolving market terminology around novel drug therapies.

The ETF maintains 46 holdings with approximately 75 percent in large-cap positions and 22 percent in mid-cap securities, providing a blend across market capitalizations. Geographic concentration leans heavily US-focused at roughly three-quarters of holdings. Leading positions include Eli Lilly at 10.04 percent weight, Roche Holding at 5.42 percent, and Johnson & Johnson at 4.8 percent—companies driving innovation in targeted therapeutic spaces.

4. Global X Genomics & Biotechnology ETF (GNOM)

Fund Size: US$51.53 million

This ETF targets companies participating across genomics value chains: gene editing, genomic sequencing, genetic medicine, and computational biology platforms. By tracking the Solactive Genomics Index, the fund concentrates on 50 holdings predominantly active in pharmaceuticals, biotechnology, and life sciences sectors—roughly 90 percent of portfolio composition.

Moderna commands 6.33 percent of the fund, with Arrowhead Pharmaceuticals holding 6.14 percent and Praxis Precision Medicines at 5.98 percent. This positioning reflects the fund’s bias toward companies engaged in cutting-edge genomic technology development—a subsector within small cap biotech stocks showing particular institutional interest.

5. Virtus LifeSci Biotech Products ETF (BBP)

Fund Size: US$44.8 million

Launched in December 2014, the Virtus LifeSci Biotech Products ETF specifically targets US-listed biotech enterprises with at least one FDA-approved therapeutic product on market. This screening criterion ensures exposure to companies that have already navigated the regulatory pathway—eliminating purely preclinical or experimental-stage entities from consideration.

The fund employs an equal-weighted rebalancing methodology applied semi-annually, theoretically preventing concentration drift while maintaining exposure across the small cap biotech stocks universe. Current top holdings include ImmunityBio at 3.98 percent, Mirum Pharmaceuticals at 2.4 percent, and Moderna at 2.16 percent weight. The equal-weighting approach distributes capital across positions, contrasting with market-cap-weighted alternatives that concentrate holdings in the largest performers.

Selecting the Right Small Cap Biotech Stocks Vehicle

Each ETF structure serves distinct investor objectives. Leveraged funds suit tactical traders; inverse vehicles function as hedges; thematic funds target specific therapeutic areas; genomics-focused instruments capture technology disruption; and FDA-approval-screened funds emphasize de-risked exposure. Understanding these structural differences allows investors to align small cap biotech stocks selection with individual risk tolerance and investment horizons. The diversity of approaches reflects how specialized ETFs have democratized access to small cap biotech stocks for portfolio managers operating beyond traditional direct equity selection.