“Last week a number of biotech players, including Millipore (MIL), OSI Pharmaceuticals (OSIP), Intermune (ITMN) and Sequenom (SQNM) turned in double-digit gains in the volatile health care subsector. On the other side, health care stocks do fall, leaving investors with a bitter taste. For example, when Medivation’s (MDVN) Alzheimer’s drug failed in a late-stage trial last week, shares of the firm fell over 65% in a single session. Given such violent swings, ETF companies have adopted some unique approaches for investors in the biotech industry,” Don Dion Reports From The Street.

Dion goes on to say, “Though there a number of biotech ETFs, three –SPDR S&P Biotech(XBI), iShares Nasdaq Biotech(IBB), and First Trust NYSE Arca Biotech(FBT) — stand out for their huge size and liquidity. Deciding on which to invest in depends on a person’s investing goals. Conservative investors looking for a stable play on the biotech industry should turn to IBB. IBB has assets weighted toward the largest companies in the industry, such as Amgen(AMGN) in the top spot, with 10.2% of assets, followed by Gilead(GILD), with 8.1%, and Teva Pharmaceutical(TEVA), with 7.9%. By tracking such large firms, the instrument is far less susceptible to violent movements that smaller industry players are susceptible to. Though stability may appeal to risk-adverse individuals, IBB may prove to be too reserved for those looking for more pop. Investors looking for more dramatic swings will find FBT or XBI to be more to their liking.”

“Rather than tracking the strongest, most stable biotech companies, these funds employ an equal-weighted strategy across biotech firms of all sizes. This strategy allows investors to internalize large gains while avoiding bloated exposure to any single firm that may be a big flop. Though investors can gain ample exposure to the biotech industry using either FBT or XBI alone, playing them together will provide access to an even broader array of companies. The two funds share a number of identical holdings, but investors can gain access to 34 companies by including both in a single portfolio. So far in 2010, FBT and XBI have outperformed their market-cap-weighted cousin, IBB. Given the equal-weighted nature of these two funds, I expect this type of performance to continue into the future,” Dion Reports.

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Here are some details on the three biotech ETFs:

The investment (XBI) seeks to replicate as closely as possible, before expenses, the performance of an index derived from the biotechnology segment of a U.S. total market composite index. The fund uses a passive management strategy designed to track the total return performance of the S&P Biotechnology Select Industry index. The Biotech index represents the biotechnology sub-industry portion of the S&P Total Market index. It is nondiversified.

The investment (FBT) seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the NYSE Arca Biotechnology Index. The fund normally invests at least 90% of assets in stocks that comprise the index. The index measures the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. The fund is nondiversified.

The investment (IBB) seeks investment results that correspond generally to the price and yield performance of the Nasdaq Biotechnology index. The fund uses the process of representative sampling, holding securities that have a similar investment profile to its index. The fund normally invests at least 90% of assets in the securities of the index or in American Depository Receipts. The fund may hold up to 10% of assets in securities that are not included in the index. It is nondiversified.

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FBT, IBB, XBI