The stocks of biotechnology companies, which use biological substances such as enzymes and proteins from living cells as components for new medications, were up 35% this year through August 27. Although biotech stocks are volatile, they likely will continue to surge. That’s because an unusually high number of new biotech drugs are being approved for commercial sale by the Food and Drug Administration (FDA). Last year, 39 biotech drugs received approval, the most in nearly two decades. There likely will be about 35 approvals annually through 2016.

The value of biotech companies also is being bid up by acquisition-minded global pharmaceutical giants seeking to fill their pipelines with the new products that the biotechs can provide. Biotech-stock valuations are high compared with the Standard & Poor’s 500 stock index but remain reasonable for companies likely to grow their earnings per share by 40% annually for the next several years.

Biotechs tend to focus on chronic or life-threatening illnesses such as cancer for which the government and private insurers continue to pay well for effective treatments.

Putting 5% of your stock portfolio in biotechs can boost overall returns over time. But because these stocks’ individual potential can be complicated to evaluate, most people should invest through a fund. My favorites: Fidelity Select Biotechnology Portfolio (FBIOX), which focuses on more established, large-cap biotech companies (10-year annualized performance: 13%)…and SPDR S&P Biotech ETF (XBI), a low-cost exchange-traded fund launched in 2006 that keeps about two-thirds of its portfolio in small- and micro-cap stocks (five-year annualized performance: 13%).

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