Biotech stocks have had a great couple of months but you’d barely know it if your only exposure to the group comes from the biggest and broadest index fund IBB. The real fire for investors is going on behind the scenes.

IBB is only up 4% in the trailing quarter, which isn’t really convincing confirmation that the ruthless selling that still has shareholders holding a 30% YTD loss has fully ended. It might just be another bounce like the one we saw in February . . . when IBB popped 10% before plunging 23%.

And yet even a casual screen of biotech stocks reveals several up-and-coming names up 50% to 100% in the same three-month period. Shockingly, they aren’t major holdings in IBB. It’s almost like the index fund missed them completely.

That’s roughly what happened. While IBB owns almost 400 biotech stocks, the problem is that those positions are weighted by size to reflect their footprint in the industry as a whole. The bigger the company, the more shares IBB needs to buy.

You don’t get to be a big company without making a lot of progress. IBB, like any weighted portfolio, reflects hundreds of billions of dollars of historical wealth creation. These are the stocks that made shareholders rich in the past.

I’m not convinced many of them have a lot of runway left. Six of the top ten holdings in IBB are so big that they formally aren’t even pure plays on biotech . . . Amgen (AMGN), Gilead (GILD) and Biogen (BIIB) are officially just “big pharma” stocks now, and Illumina (ILMN), IQVIA (IQV) and Mettler-Toledo (MTD) really sell more diagnostic supplies than actual therapies.

And those top ten holdings are a full 50% of the portfolio. That doesn’t leave a lot of room for companies that are actually following the traditional biotech narrative of collecting money to take the most promising potential therapies toward the regulators and commercial markets.

These are the companies I love. They aren’t Moderna (MRNA) or BioNTech (BNTX), which have shrunk $34 billion together YTD. Those stocks swelled up to become the heavyweights that dominate funds like IBB today.

Now they’re shrinking as the COVID vaccine boom evaporates, leaving the index overloaded with dead money. The bubble must burst to make room for a new generation of companies to fill the void.

That burst will be painful unless those new companies have a big enough footprint within the portfolio to balance the pain and move past it. IBB just can’t do that.

You miss out on stocks like Alnyam (ALNY) and Sarepta (SRPT) and Karuna (KRTX), which is only 1/7 the size of MRNA and has more than doubled its market cap in the last three months. These are the stocks with a strong pipeline and palpable progress toward commercializing it.

Will they all make it all the way to the FDA and create blockbuster cures? No way. But the math that separates zero from actual cash flow is a lot more supportive than what the giants have to deal with now.

They’ll never have that transformational moment again. ALNY and SRPT are on the edge, with run rates that could hit $1 billion a year in the next few months. KRTX is still a long way from that threshold and may never make it . . . but for now, the future looks bright.

I could talk about this forever. All we need to know today is that IBB cheats you out of meaningful exposure to these and similar names that have most of their corporate evolution ahead of them. Instead, the portfolio focuses on companies so large they lack a lot of the sizzle that brings investors to biotech in the first place.

Don’t weight your favorites by size. Assign allocations by conviction . . . or just equally. That’s what XBI does. Check out its relative performance this year and the advantage is clear.