The ProShares UltraPro Nasdaq Biotechnology ETF (Nasdaq: UBIO) is a leveraged exchange-traded fund (ETF). These funds use financial derivatives and debt securities to augment returns on the underlying index. Leveraged ETFs are available for most major market and sector indexes, including the Nasdaq 100 and the Dow Jones Industrial Average (DJIA). Typically, these funds attempt to maintain a consistent amount of leverage during the time frame of the investment, most often either three to one or two to one.
UBIO's underlying index is modified and capitalization-weighted, and it includes securities of the Nasdaq-listed companies classified as being primarily engaged in biotechnology or the broader pharmaceutical industry. For securities to qualify for being part of the index, they must meet other requirements specified by Nasdaq as well, including a minimum market capitalization of $200 million and a daily trading volume minimum of 100,000 shares. The index has a semi-annual ranking review to ensure that all the securities still meet the specified criteria set down for inclusion. Primary holdings for UBIO include Biogen, Amgen and Gilead Sciences.
Essentially, the biotechnology industry includes companies that make use of any technological application that uses living organisms, biological systems or any byproduct thereof to modify or create products or processes designed for a specific therapeutic general health or medical use. Often, the biotechnology field overlaps with other similar fields, such as bioengineering or biomedical engineering, depending upon the applications and tools that are used. Biotechnology has been used for many years in food production, agriculture and medicine. The industry has continued to expand into an increasingly more diversified field, growing to include divergent sciences such as recombinant gene techniques, applied immunology, genomics, and the development of diagnostic tests and pharmaceutical therapies.
One of the most volatile of all market sectors, the biotechnology sector has experienced a large value boom over the past several years. Between 2009 and 2015 the Nasdaq Biotechnology Index rose from 683 to 3.686 in 2015, a total increase of 440%, or approximately 70% annually. Part of the reason for the surge in value stems from venture capital infusions leading to a number of initial public offerings (IPOs) of biotech firms. The sector is also going through a rejuvenation in product development, specifically in the area of cancer treatment, and numerous breakthroughs in biotech treatment processes have also contributed to the massive growth in biotech stocks.
UBIO is issued by ProShares. This offering from ProShares is a relatively new fund, just issued on June 22, 2015. This fund has a market capitalization of approximately $36.4 million. The expense ratio for this fund is 0.95%, which is slightly above average for similar biotechnology-focused ETFs. The fund has gained popularity with investors quickly, with an average daily trading volume of close to 200,000 shares in its first month of market availability.
Suitability and Recommendations
Although the fund's performance has yet to be established, most analysts consider it to carry a moderate level of risk. Because the fund does invest in companies that fall into the biotechnology sector, and because this sector is more volatile than most, this fund is best-suited to investors who are comfortable with an investing strategy that allows for moderate or higher levels of risk and above-average levels of volatility. Since the fund is a leveraged ETF, it is most appropriate for investors who strongly believe that the biotech sector will continue to show profitability. It is not an appropriate investment for investors who are not comfortable with the amplified profits or losses provided by leveraged investments. There is, as of August 2015, little data yet available for meaningful risk-return analysis for UBIO.