The major biotechnology exchange traded funds closed higher Monday and it is good thing considering last week’s less-than-impressive performances from the high-flying group.
Biotech ETFs have recently shown vulnerability. For example, the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF by assets, fell nearly 4% last week on its way to shedding nearly $200 million in assets and there is talk that IBB is forming a bearish head and shoulders chart pattern. [How to Deal With Biotech ETF Trouble]
“According to data from CNBC, 81 percent of stocks in the IBB with a market cap of more than $500 million are down more than 10 percent from 52-week highs, technically placing them in correction territory,” reports Stephanie Yang for CNBC.
The $9.49 billion IBB is home to 145 stocks, but the fund’s top 10 holdings combine for nearly 60% of its weight. IBB’s top four holdings combine for nearly a third of the ETF’s weight and in the case of IBB, which is a cap-weighted, downturns for the largest biotech stocks can mean trouble for the fund. IBB’s top four holdings are Celgene (NasdaqGS: CELG), Amgen (NasdaqGS: AMGN), Gilead Sciences (NasdaqGS: GILD) and Regeneron Pharmaceuticals (NasdaqGS: REGN).
For traders with a taste and tolerance risk looking to bet on further downside for IBB, the newly minted ProShares UltraPro Short NASDAQ Biotechnology (NasdaqGM: ZBIO) is an idea to consider. ZBIO, which debuted in late June, attempts to deliver three times the daily inverse performance of the Nasdaq Biotech Index, IBB’s underlying benchmark. [Don’t Mess With the Leveraged Biotech Bull]