Some Traders Aren't Shy About Betting On A Biotech Rebound

There are plenty of anecdotes and statistics underscoring how pitifully biotechnology stocks and the relevant exchange-traded funds have performed this year, but this one sums it all up quite nicely: Of the five biotech ETFs that existed prior to 2014, the best performer this year is the Market Vectors Biotech ETF BBH, and that ETF is down 20.1 percent.

That is good enough to put BBH in a bear market less than two months into 2016. Despite the biotech space's obvious struggles to start 2016, some traders are not shy about expressing bullish views. For example, the iShares NASDAQ Biotechnology Index (ETF) IBB, the largest biotech ETF, has added nearly $81 million in new assets this year.

Related Link: Rebound For Big Biotech ETF Will Require Some Patience

Perhaps surprisingly, the ultra-volatile SPDR S&P Biotech (ETF) XBI, the third-largest biotech ETF, has lost just $7.2 million in assets.

Taking A Closer Look At XBI And LABU

Speaking of XBI, its leveraged equivalent is on a torrid asset-gathering pace. That ETF is the Direxion Daily S&P Biotech Bull 3X Shares LABU.

XBI is not for the risk-averse investor. A hallmark of many equal-weight ETFs is a tilt toward smaller stocks not present in cap-weighted funds. XBI's holdings have a weighted average market capitalization of $9.8 billion. As a result, although XBI has been the best-performing biotech ETF over the past three years, it has also been the most volatile.

Year to date, XBI is down 30 percent, so it would be reasonable to expect that LABU would be down 90 percent. Actually, LABU has been “better” than that with a year-to-date loss of just under 70 percent. That includes a 10.2 percent tumble Thursday that sent the ETF to a close at $6.42. Low price tags like that for leveraged ETFs can often be harbingers of looming reverse splits.

None of that has compelled traders to resist LABU's allure. For the five days ending February 17, LABU's average volume was 14.2 percent above the trailing 20-day average, according to Direxion data. Over the past 30 days, LABU has averaged daily inflows of nearly $4.8 million.

Year to date, traders have poured $126.5 million into LABU. By comparison, the largest healthcare ETF has bled more than $394 million.