The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotech exchange traded fund by assets, is off more than 5% over the past month, bringing its year-to-date loss to just over 20%.
That is enough to put IBB in bear market territory for the year and with post-election enthusiasm for biotech stocks and ETFs faltering, some believe there are more declines on the way.
Biotechnology and pharmaceutical stocks also strengthened after the defeat of a California ballot proposal aimed at reining in the increasing prices on prescription drugs.
As a gauge of risk appetite, IBB’s chart action is worth noting for investors.
“What the biotechnology stocks do is not only important for biotech investors, but also for all stock markets. Biotech, as part of the health sector, has been a leader in recent years. Markets typically rotate their leaders and laggards. But still health and biotech are risk sensitive so stock bulls do not want this sector to break down,” according to ETF Daily News.
Bearish plays on healthcare and biotech ETFS include the recently launched Direxion Daily S&P Biotech Bear Shares (NYSEArca: LABD) takes the -3x or -300% daily performance of the biotech sector, ProShares UltraPro Short NASDAQ Biotechnology (NasdaqGM: ZBIO) also tracks the -3x or -300% daily performance of the Nasdaq Biotechnology Index, ProShares Ultrashort Nasdaq Biotechnology (NasdaqGM: BIS) tracks the -2x or -200% daily performance of the biotech space and ProShares UltraShort Health Care (NYSEArca: RXD) follows the -2x or -200% daily performance of the broader healthcare sector.
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During the presidential campaigns, biotechnology and pharmaceutical companies like EpiPen allergy shot maker Mylan NV and Valeant Pharmaceuticals International have come under fire over their high drug prices, following Hillary Clinton’s censures.
While Trump was expected to be a proponent to free-market health care, drug company executives and observers warned that the President-elect could scrutinize prices as a populist issue.
“What to do if this sector breaks down? Stock investors should watch what other technology sectors do, for instance by following the growth index ETF (IVW). In case most other sectors are not breaking down, there would not be too much risk of ‘contagion’. Specifically to biotech investors we can only say to examine the biotech stocks in their portfolio, and ensure their biotech positions only cover sector leaders,” adds ETF Daily News.
For more information on the biotech sector, visit our biotechnology category.