As a rule, pharmaceutical companies show high profits and high value in their stocks. And since pharmaceutical companies in the biotechnology sector, all biotech ETFs contain some. That doesn’t necessarily mean that these investments are a good idea, however. In 2009, biotech stock took serious hits, but they’ve shown recovery and even major improvements in 2010. How do you know what to look for before you invest?

First of all, if you want to feel any sort of confidence about your particular biotech ETF, and currently there are 6 to choose from, then you should watch the market for a while first and look at the recent past and future plans of some of the various companies represented. Each fund carries different companies, though some are carried in several funds. Looking at the growth of the individual companies within a fund can help you choose which one you want to invest in.

One ETF has risen in value over 30% in the first half of 2010. The others have risen also, just not by nearly that degree. Things that affect the value of these investments include successful drug trials, even before that particular drug hits the market. When a company that’s developing a drug shows good results in testing and trials, that increases consumer and investor confidence in that drug and its manufacturer, and the stock rises in value.

But just as easily as the stock goes up, it can come down. Drug recalls, expiring patents that allow generics to be introduced into the market that pull consumer money away from the expensive brand name drugs, and unsuccessful drug trials can send a company’s stock plummeting. With a biotech ETF, you’re cushioned by stock in other companies, and that may prevent a loss. But it will probably also prevent a profit, unless the other companies represent a gain enough to make up for a large company’s dropping stock value.