Biotechnology stocks remain one of worst performing areas that are still stuck in a bear market after failing to recuperate earlier losses in the year, along with the broader market. However, exchange traded fund (ETF) investors still believe in a rebound.
The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF by assets, declined 17.0% year-to-date and decreased 22.2% over the past year. Meanwhile, IBB has attracted $152.5 in net inflows year-to-date, according to ETF.com.
“Biotechs took such a beating that it still needs to catch up,” David Fajardo, Senior Vice President of Direxion Investments, told ETF Trends in a call.
Biotechnology has finally stumbled as outperforming growth stocks took a hit earlier this year. The sector has previously been outperforming during the bull market rally, with IBB showing an average annual return of 21.9% over the past five years, compared to the S&P 500’s return of 5.4%.
“Many were thinking it was overbought, but now many think it is oversold,” Fajardo added.
ETF traders, though, have been betting big on the biotechnology sector rebound with leveraged long options. For instance, the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index, has attracted $138.2 million in net inflows year-to-date. Bets on the biotech sector have recently paid off, with LABU surging 52.3% over the past month.
Additionally, the UltraPro NASDAQ Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, saw $16.9 million in inflows this year while the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark, added $7 million. Over the past month, UBIO jumped 42.9% and BIB increased 27.9%.
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