Over the past few days, I've been noticing more and more interest from traders and analysts in the biotech sector.
This morning's dip in the group seems to highlight the reputation the sector has for very quick, volatile moves. Just like other high-beta groups, investing in them is subject to a high degree of stock-specific risk.
That's one reason exchange-traded funds have been so popular in sectors like this – it allows one to participate in some of the upside while mitigating a large part of the fear that a failed trial is going to knee-cap your entire investment.
Biotech is one of those areas where it either seems to be hot or cold, with little room in-between. One way we see that is via the assets shifts in the Rydex Biotechnology fund, which can swing from one extreme to the other in a short period of time.
The current situation there is interesting. Even though biotech, in general, has held up very well lately, interest in the group seems to have waned. Assets in the Rydex Biotech Fund
) have dropped under $100 million for one of the few times in its history. The chart below shows what has happened to the Nasdaq Biotech Index
) other times this happened.
I also think it's interesting that those assets, expressed as a percentage of total sector assets under Rydex's management, have dropped to about 5%, from 25% just a few years ago. This is unusual for a sector that has done well.
Sentiment analysis is only one part of a well thought-out trading idea, and a look at Rydex flows is only one part of that sentiment analysis, but this one part suggests that there is a high degree of apathy towards the group – and that kind of attitude leaves quite a bit of room for upside improvement.
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