With Tuesday's loss of about 4 percent at time of writing, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), the largest biotech exchange traded fund by assets, is down 14.5 percent over the past month.
So it is no surprise that short sellers have piled into IBB and some of the ETF's marquee holdings. On June 30, short interest in IBB was 8.14 million shares, requiring 4.6 days to cover those shares, according to Nasdaq data. As of September 15, those numbers had climbed to 9.32 million IBB shares sold short requiring almost six days to cover.
The biotech sector's increased volatility has been a blessing (and a curse) for leveraged biotech ETFs, making at least two some of this year'smost popular new ETFs.
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Due to increased competition in the ETF industry, traders can now choose from four leveraged equivalents of IBB, two bullish and two bearish funds. One of those ETFs was exceptionally well-timed, the ProShares UltraPro Short Nasdaq Biotechnology (NASDAQ: ZBIO). Designed to deliver triple the daily inverse performance of the Nasdaq Biotechnology Index, IBB's underlying index, ZBIO debuted on June 22.
Talk about good timing. All IBB has done is tumble more than 15 percent since June 30 and, as was noted earlier, has along with some of its marquee holdings, drawn the ire of short sellers.
"The 10 constituents of the IBB ETF which have been most targeted by short sellers in recent months have largely lagged the index, indicating that short sellers have been emboldened by their recent success. On average these 10 companies declined 32% since June 30th 2015 while the overall IBB ETF was down just 17% over the same period,"Barron's reported, citing Markit.
IBB's top 10 holdings include well-known biotech behemoths such as Celgene Corp. (NASDAQ:CELG), Amgen Inc. (NASDAQ:AMGN) and Gilead Sciences Inc. (NASDAQ:GILD). This is a top heavy ETF, meaning the fact that short sellers are targeting its top 10 holdings is useful information for traders considering an ETF such as ZBIO.
IBB is a cap-weighted ETF, resulting in its top four holdings, including the three aforementioned stocks, combining for over a third of the fund's weight. Overall, IBB's top 10 holdings combine for over 60 percent of the ETF's weight, according to issuer data.
IBB's five largest holdings combine for over 41 percent of the ETF's weight, which is to say when short sellers are targeting the largest biotech names, that could make ZBIO a rewarding short-term trade. ZBIO has surged more than 47 percent since June 30.
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