Biotech Suffers Record Exit at Largest ETF Signaling Turn

Investors pulled a record $372 million from the biggest biotechnology exchange traded fund in its worst day of redemptions ever.

The withdrawals from the iShares Nasdaq Biotechnology ETF on April 4 were the most since its 2001 inception, with 7.5 percent of the funds $4.98 billion in total assets leaving what is the biggest biotech-focused ETF, according to data compiled by Bloomberg. It follows a lengthy run-up in biotechnology industry stocks.

Now, that momentum money is being sucked out, said Geoffrey Porges, an analyst with Sanford C. Bernstein & Co. in New York, in a telephone interview.

Health-care ETFs have boomed this year, attracting more deposits than any other sector and adding $3.98 billion since January 1. That increase has been spurred by a biotechnology sector that last year gained 74 percent, compared with a 30 percent increase in the Standard & Poors 500 Index.

ETFs are investment funds that can hold stocks, bonds, commodities or other securities that trade on an exchange and typically track an index. Theyve grown in popularity among investors because of their tradability, low cost relative to mutual funds and tax efficiency.

Recently, investors have begun to question whether biotechnology stocks are in a bubble and whether the companies developing complex and often expensive medicines are worth their high valuations. After gaining 11 percent in January and February, the Standard & Poors 500 Biotechnology Index has fallen 11 percent since March 3.

We consider the sectors run-up, which has been remarkable, to be getting into its very final innings, Porges said in a telephone interview. Stocks could be set for a significant move downward, especially if generalist investors decide to leave, he said.

Robyn Karnauskas, an analyst with Deutsche Bank in New York, disagrees.

The way I see it, I think weve turned the corner, she said in a telephone interview. I dont see this as downside. When the fundamentals are strong and you have catalysts like earnings, I dont think were headed for a bear period.

The Nasdaq Biotechnology exchange-traded fund, also known as the IBB, is made up of the shares for 122 biotechnology and medical companies including its biggest holdings -- Amgen Inc., Gilead Sciences Inc. (GILD) and Celgene Corp. The SPDR S&P Biotech ETF also had its worst day since May 2010 on April 4 as investors pulled $80 million, or 6.6 percent of assets.

Go here to read the rest:

Biotech Suffers Record Exit at Largest ETF Signaling Turn