A frequently cited statistic about biotechnology exchange traded funds is that six such funds are found among this year’s top 10 non-leveraged sector ETFs.

Impressive indeed, but 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. While it remains to be seen if the recent struggles encountered by biotech ETFs are the start of something more severe or merely a bump in the road before a new leg higher, investors can prepare for the former scenario with inverse ETFs.

Thursday’s “action, looked to to us to finish off the right shoulder of a bearish Head & Shoulder Top pattern. For this to be completed, you need to see a break of the neckline, preferably on some heavy volume,” according to Captain John Charts in reference to IBB.

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]

Gven the lofty year-to-year returns, some are growing cautious over the biotech sector. Some argue that the high valuations in the biotech sector have been supported by a low interest rate environment. However, with the Federal Reserve eying an interest rate hike, biotechs may be more vulnerable ahead.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.