A frequent criticism of leveraged ETFs is that, due to the compounding of daily returns, the funds’ returns do not always turn out to be exactly double or triple those of the underlying index or the equivalent plain vanilla ETF.
In the case of BIB, it has been slightly better than twice as good as IBB over recent time frames. For example, BIB is 38% over the past three months while IBB is higher by 18.5%. Since the start of 2014, BIB is up 10.8% while IBB is higher by 5.1%. BIB has been so successful that will be split 2-for-1 on Jan. 23. [ProShares Announces Splits on a Slew of its ETFs]
With BIB’s Friday close at a new all-time high of $166.72 and the ebullience currently surrounding the biotech sector, there can be no guarantees the split will keep BIB out of triple-digit territory.
Those willing to take on the volatility present with a double-leveraged ETF such as BIB should still do their due diligence. That means realizing that since Celgene (NasdaqGM: CELG), Amgen (NasdaqGM: AMGN), Biogen Idec (NasdaqGM: BIIB) and Gilead Sciences (NasdaqGM: GILD) combine for about 30% of IBB’s weight, those that embrace BIB are making a highly leveraged bet on those names.
ProShares Ultra Nasdaq Biotechnology
