U.S. Markets closed

Overlooked Bearish Biotech ETF Grows Up…Sort Of


An oft-discussed theme over the past month has been the decline of biotechnology stocks and exchange traded funds, a conversation that is gaining steam Friday as the iShares Nasdaq Biotechnology ETF (IBB) , the largest biotech ETF, drifts below its 50-day moving average.

IBB and rival ETFs with significant exposure to the largest biotech stocks, such as the Market Vectors Biotech (BBH) , are being hampered by a 4.5% drop in shares of Biogen Idec (BIIB) despite news the company received Canadian approval for its hemophilia B drug Alprolix.

BBH, which holds just 26 stocks, allocates almost 9% of its weight to Biogen. Biogen is IBB’s largest holding at a weight of 8.3%.

Glum performances by biotech ETFs on Friday extend a malaise that has lasted about a month, one that has coincided with increased chatter, focused almost entirely on valuation, that biotech stocks are in bubble territory. [Why This Biotech ETF is Tops]

Accounting for Friday’s declines at this writing, IBB is down 5.7% in the past month while BBH is off about 7%. Perhaps in proof the biotech bubble theory is flawed, the SPDR S&P Biotech ETF (XBI) , an equal weight ETF with ample small-cap exposure, is down just 3.7% since Feb. 21.

Those looking to bet against biotech stocks without shorting those stocks, any of the aforementioned ETFs or heading to the options market can consider the ProShares UltraShort NASDAQ Biotechnology (BIS) .

Though double-leveraged, BIS is a straight forward product. It attempts to deliver twice the daily inverse performance of the NASDAQ Biotechnology Index, IBB’s underlying index. As we just noted, IBB is down 5.7% in the past month, which has helped BIS rise almost 10.5% over the same time frame. [Study Your Biotech ETFs]

Flows data with ETFs does not always tell the entire story, but recent action in BIS is, at the very least interesting. The ETF had $7.76 million in assets under management at the end of last year, according to ProShares data. Since Feb. 14, BIS has taken in nearly $16.6 million.

So on a percentage basis, asset growth experienced by BIS has been phenomenal. Then again, $16.6 million in wagers against IBB, which has almost $5.8 billion in assets, is not a significant amount. Add to that, BIS has a bullish cousin, the ProShares Ultra Nasdaq Biotechnology (BIB) , which has pulled in over $70 million since Feb. 14.

ProShares UltraShort NASDAQ Biotechnology