Zacks Investment Ideas feature highlights: iShares Nasdaq Biotechnology, SPDR S&P Biotech ETF, ProShares Short S&P500, ProShares UltraShort S&P500 and ProShares UltraPro Short S&P500

For Immediate Release

Chicago, IL- October 12, 2015 – Today, Zacks Investment Ideas feature highlights Features: iShares Nasdaq Biotechnology (IBB), SPDR S&P Biotech ETF (XBI), ProShares Short S&P500 (SH), ProShares UltraShort S&P500 (SDS) and ProShares UltraPro Short S&P500 (SPXU).

Huge Mistakes Every ETF Investor Needs to Avoid

The ETF world has grown by an incredible amount over the last few years. There are close to 1,750 products in the market while assets under management has cleared $2 trillion in the U.S.

But while ETFs have grown immensely in popularity, it is still amazing to hear how many misconceptions I hear or read about the product category. Many investors, and even professional ones, don’t seem to get many of the ETF basics despite the growing importance and use of these funds in portfolios.

In light of this, I’ve taken a look at seven common misconceptions or errors that I frequently hear or see regarding ETFs. Hopefully after reading the list below you will know a bit more about how to use ETFs in your portfolio, and will be able to avoid some of the key pitfalls that tend to trip up novice ETF investors:

‘That’s a low volume ETF, I can’t buy that!’

Many investors think about ETFs just like they think about stocks. And for the most part this is a fine strategy, it can get you into trouble when it comes to volume. Most investors might see ‘low’ volumes for some ETFs—below 50,000 shares a day—and think that they will either move the market, or simply won’t be able to get in at a good price.

While this sometimes will be the case, it usually isn’t true for ETFs. Exchange Traded-Funds derive their liquidity from their underlying holdings so if you are investing in an ETF that has large cap U.S. stocks, it should be easy to trade it reasonably without worrying about volume (also see The Truth About Low Volume ETFs ).

After all, if prices deviate too far from the underlying holdings’ trading value, market makers can step in with arbitrage to correct any imbalances. It is probably more useful to be mindful of bid/ask spreads when trading ETFs and so-called level two quotes to get a better idea of tradability. Usually, on many low volume ETFs you’ll see tight bid ask spreads meaning it should be pretty easy for you to get in and out of a fund.

‘Just pick any ETF that has the theme I am looking for’

(IBB) and ( XBI) both track the biotechnology market, though they do so in very different ways. IBB tracks a mostly large cap-focused index while XBI has an equal weight approach which gets more small cap biotech names in there. While this might seem like a relatively minor detail—both still follow biotechnology after all—it can result in a huge performance differential.

XBI has nearly doubled IBB’s return over the past twelve months at about 27%-15.2%. However, it has also been much more volatile, surging on the way up and leading on the way down too. So just because two ETFs have the same phrase in their title doesn’t mean they are going to give anywhere close to identical returns (also watch the Intro Guide to Leveraged Biotech ETF Investing ).

‘What’s leveraged ETF rebalancing?’

Easily the most misunderstood on the list is the idea of leveraged ETF rebalancing. Most leveraged and inverse ETFs rebalance on a daily basis offering to give you a leverage factor for only a single trading day. What this means for investors is that long-term performances will inevitably be different from what is expected as rebalancing eats away at returns.

Take for example recent performance in SPY and its -1x (SH), -2x (SDS) and -3x ( SPXU) counterparts over the past month. SPY has gained 5.02% but SH has lost 5.31%, SDS has tumbled 10.18%, and SPXU has fallen by 15.36%. All of these figures are worse than what you might expect, and this is simply due to daily rebalancing in a shaky market. Rebalancing makes it impossible to build up momentum in an oscillating market, so don’t be surprised if this happens to you in your next leveraged or inverse ETF investment (see Understanding Leveraged ETFs ).

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ISHARES NDQ BIO (IBB): ETF Research Reports
 
SPDR-SP BIOTECH (XBI): ETF Research Reports
 
PRO-SHRT S&P500 (SH): ETF Research Reports
 
PRO-ULSH S&P500 (SDS): ETF Research Reports
 
PRO-ULT SH S&P5 (SPXU): ETF Research Reports
 
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