When it comes to the popularity contest among leveraged exchange traded funds, few can compete with the likes of the Direxion Daily Small Cap Bull 3X Shares (NYSEArca: TNA) or the ProShares Ultra S&P500 ETF (NYSEArca: SSO) either in terms of assets under management or average daily volume.
But as is the case with plain vanilla ETFs, there are some leveraged funds that toil in obscurity when they deserve much more consideration from active, risk-tolerant traders. Some of these anonymous leveraged ETFs are more focused, tactical plays than broad market funds such as SSO and TNA. And some are just right for the current market environment.
That is what was recently pointed out about the unheralded ProShares Ultra KBW Regional Banking (NYSEArca: KRU), which we recently highlighted as a credible play on regional banks benefiting from rising Treasury yields. [Remember This Leveraged ETF as Rates Rise]
Speaking of good timing for a leveraged ETF, checkout the ProShares Ultra Nasdaq Biotechnology (NasdaqGS: BIB). BIB seeks investment results that correspond to twice (200%) the return of the Nasdaq Biotechnology Index. That is the underlying index for the popular iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB).
Not only is IBB the largest biotech ETF with over $4.7 billion in assets under management, it was last year’s top-performing non-leveraged health care ETF and has ranked among the top-10 non-leveraged sector ETFs three years running. [Duel to be 2013’s Best Health Care ETF]
Due to the mostly positive notoriety surrounding the biotech sector for several years now, BIB is not particularly small among leveraged ETFs. The fund had $170 million in AUM as of the end of August 2013, according to ProShares data.
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
